Comparative advantages in banking and strategic specialization and diversification

Indrajit Mallick ()

MPRA Paper from University Library of Munich, Germany

Abstract: Abstract This paper shows how banks specialize in different activities when they start with different comparative advantages. The possibility of wrong specialization is shown in a Cournot game with convexities. Different resolution mechanisms are discussed. With risk averse financial intermediaries, excessive diversification is shown to be a problem. Financial innovation like credit derivatives and securitization can mitigate the problem and result in optimal specialization and diversification patterns.

Keywords: Comparative Advantage; Specialization; Diversification (search for similar items in EconPapers)
JEL-codes: C70 G21 (search for similar items in EconPapers)
Date: 2002-12-31
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Citations: View citations in EconPapers (1)

Published in Finance, Trade and Development NA.NA(2004): pp. 1-26

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:32605

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