Strategic Interactions in Financial Networks
2020 Papers from Job Market Papers
This paper models interactions of firms in a pre-trading(fixed network of lending/borrowing) period whereby firms set fixed lending rates given loan management cost. We show strategic substitution in the rate each firm sets and more fundamentally, propose that the rates charged to debtors by a creditor firm is likened to results from a private provision of public good in networks game. We then highlight specific core-periphery network properties in relation to interdependence and Nash rate charged by firms. For welfare policies, we find neutrality of intervention policies that create or reduce transaction cost and improvement based on policies that provide administrative subsidies thus creating an avenue for cost effective resource transfer policy. Lastly, we find significant relationship between a firms centrality measured by weaker negative externality and welfare improvement due to such subsidy.
JEL-codes: C72 D44 D85 E43 H23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gth, nep-mac, nep-net and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:jmp:jm2020:pdi579
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