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Finance and Economic Development in a Model with Credit Rationing

Jean-Louis Arcand (), Enrico Berkes () and Ugo Panizza

No 02-2013, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies

Abstract: This paper develops a simple model with credit rationing and endogenous default risk in which the expectation of a bailout may lead to a financial sector which is too large with respect to the the social optimum. The paper concludes with a short discussion of how this model could be used as a building block for models aimed at endogenizing the probability of a bailout, and discussing the relationship between the size of the finanancial sector and economic growth in the presence of default risk.

Pages: 14 pages
Date: 2013-02-01
New Economics Papers: this item is included in nep-ban, nep-fdg and nep-rmg
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