Oligopoly Banking and Capital Accumulation
41 Pages Posted: 15 Jan 2001
Date Written: December 2000
Abstract
We develop a dynamic general equilibrium model of capital accumulation where credit is intermediated by banks operating in a Cournot oligopoly. The number of banks affects capital accumulation through two channels. First, it affects the quantity of credit available to entrepreneurs. Second, it affects banks' decisions to collect costly information about entrepreneurs, and thus determines the efficiency of the credit market. We show that under plausible conditions, the market structure that maximizes the economy's steady-state income per capita is neither a monopoly nor competition, but an intermediate oligopoly. Moreover, the credit market splits in two segments: one in which loans are screened and only high quality entrepreneurs obtain credit, and one in which banks extend credit indiscriminately to all entrepreneurs. The relative size of the two segments depends on the market power of banks and evolves endogenously along the path of capital accumulation. We thus obtain the prediction that the banking sector becomes more sophisticated as the economy develops.
JEL Classification: G1, G2, L1, L2, O1, O4
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Financial Dependence and Growth
By Raghuram G. Rajan and Luigi Zingales
-
Stock Markets, Banks, and Growth: Panel Evidence
By Thorsten Beck and Ross Levine
-
Stock Markets, Banks, and Growth: Panel Evidence
By Thorsten Beck and Ross Levine
-
Stock Markets, Banks, and Economic Growth
By Ross Levine and Sara Zervos
-
Financial Development and Economic Growth: Views and Agenda
By Ross Levine
-
Stock Markets, Banks, and Growth: Correlation or Causality
By Thorsten Beck and Ross Levine
-
By Thorsten Beck, Asli Demirgüç-kunt, ...
-
Finance, Firm Size, and Growth
By Thorsten Beck, Asli Demirgüç-kunt, ...
-
Finance, Firm Size, and Growth
By Thorsten Beck, Asli Demirgüç-kunt, ...
-
Financial Intermediation and Growth: Causality and Causes
By Ross Levine, Norman Loayza, ...