Author： Park S.
Publisher： Academic Press
ISSN： 1042-9573
Source： Journal of Financial Intermediation, Vol.5, Iss.3, 1996-07, pp. : 284-304
Disclaimer: Any content in publications that violate the sovereignty, the constitution or regulations of the PRC is not accepted or approved by CNPIEC.
Abstract
This paper models an economy in which risk-averse savers and risk-neutral entrepreneurs make investment decisions. Aggregate investment in high-yielding risky projects is maximized when risk-neutral agents bear all nondiversifiable risks. A role of banks is to assume nondiversifiable risks by pledging their capital in addition to diversifying risks. Banks, however, do not completely eliminate risks when monitoring by depositors is imperfect. Government deposit insurance that uses tax revenue to repay depositors transfers remaining risks to entrepreneurs. Deposit insurance can improve welfare because imperfect monitoring by the government largely results in income transfer among risk-neutral agents rather than lower production. Journal of Economic Literature Classification Numbers: G21, G28.
Related content
Access to resources
Recommend
By Ruiz-Palomino Pablo Martínez-Ruiz María Pilar Martínez-Cañas Ricardo
International Journal of Human Resource Management, Vol. 24, Iss. 11, 2013-06 ,pp. :