Finance and the Preservation of Wealth

Nicola Gennaioli, Andrei Shleifer and Robert Vishny

No 19117, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We introduce the model of asset management developed in Gennaioli, Shleifer, and Vishny (2012) into a Solow-style neoclassical growth model with diminishing returns to capital. Savers rely on trusted intermediaries to manage their wealth (claims on capital stock), who can charge fees above costs to trusting investors. In this model, the size of the financial sector rises with aggregate wealth, and wealth grows relative to GDP. As a consequence, the ratio of financial income to GDP rises over time, even though fees for given financial services decline. Because the size of the financial sector fluctuates with changes in investor trust, the model can account for the sharp decline of finance in the Great Depression, as well as its slow recovery afterwards. Entry by financial intermediaries as wealth increased in recent years may have further deepened investor trust and encouraged growth of financial income.

JEL-codes: D91 E21 E44 G11 (search for similar items in EconPapers)
Date: 2013-06
Note: AP CF EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Published as Nicola Gennaioli & Andrei Shleifer & Robert Vishny, 2014. "Finance and the Preservation of Wealth," The Quarterly Journal of Economics, Oxford University Press, vol. 129(3), pages 1221-1254.

Downloads: (external link)
http://www.nber.org/papers/w19117.pdf (application/pdf)

Related works:
Journal Article: Finance and the Preservation of Wealth (2014)
Working Paper: Finance and the Preservation of Wealth (2014)
Working Paper: Finance and the Preservation of Wealth (2014)
Working Paper: Finance and the Preservation of Wealth
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:19117

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w19117

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().