We develop a simple general equilibrium model in which investment in a risky technology is subject to moral hazard and banks can extract market power rents. We show that more bank competition results in lower economy-wide risk, higher social welfare, lower bank capital ratios, more efficient production plans and Pareto-ranked real allocations. Perfect competition supports a second best allocation and optimal levels of bank risk and capitalization. These results are at variance with those obtained by a large literature that has studied a similar environment in partial equilibrium, they are empirically relevant, and carry significant implications for policy guidance.
|Titolo:||Banking competition and welfare|
|Autori interni:||LUCCHETTA, Marcella|
|Data di pubblicazione:||2017|
|Rivista:||ANNALS OF FINANCE|
|Appare nelle tipologie:||2.1 Articolo su rivista |