Taste-based Investing, Government Policies and Competition in Financial Intermediation

Damien Capelle

No 2026/019, IMF Working Papers from International Monetary Fund

Abstract: This paper develops a theory of how investors’ tastes are transmitted to aggregate investment through the market structure of financial intermediation. Whether tastes affect equilibrium capital allocation depends on where they originate—from households or from intermediaries—and on the degree of competition and segmentation in funding markets. Strong competition amplifies the pass-through of households’ tastes for amenity assets, but arbitrages away intermediaries’ own tastes. The same forces shape the effectiveness of financial-sector policies targeting households or intermediaries. I apply and quantify the framework in the context of green finance.

Keywords: taste-based investing; bank; capital allocation; market structure; competition; financial intermediation; green finance; IMF working papers; government policy; amenity asset; Nonbank financial institutions; Climate finance; Financial sector policy (search for similar items in EconPapers)
Pages: 52
Date: 2026-01-30
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