Finance and the Preservation of Wealth
51 Pages Posted: 2 Jun 2014
There are 2 versions of this paper
Finance and the Preservation of Wealth
Date Written: March 2014
Abstract
We introduce the model of asset management developed in Gennaioli, Shleifer, and Vishny (GSV, 2014) 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 ratio of financial income to GDP increases with the ratio of aggregate wealth to GDP. Both rise along the convergence path to steady state growth. We examine several further implications of the model for management fees, unit costs of finance, and the consequences of shocks to trust and to the capital stock.
Keywords: Finance Income Share, Wealth Preservation
JEL Classification: E00, G00
Suggested Citation: Suggested Citation