American Economic Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
Optimal Intermediary Rents
American Economic Journal: Macroeconomics
vol. 8,
no. 1, January 2016
(pp. 98–118)
Abstract
This paper studies a dynamic production economy with financial intermediation. It is assumed that claims held on intermediaries cannot be fully enforced such that intermediation is subject to intermediary equity requirements. It is shown that competitive equilibria are not constrained efficient whenever the aggregate amount of intermediary equity in the economy is low enough to limit production. Specifically, a constrained social planner can achieve a Pareto improvement by creating long-term rents for intermediaries, which immediately reduces intermediary equity requirements. The constrained-efficient allocation can be implemented by a positive tax on future intermediary activity. (JEL D21, D82, D86, G21, G28)Citation
Schroth, Josef. 2016. "Optimal Intermediary Rents." American Economic Journal: Macroeconomics 8 (1): 98–118. DOI: 10.1257/mac.20140043Additional Materials
JEL Classification
- D21 Firm Behavior: Theory
- D82 Asymmetric and Private Information; Mechanism Design
- D86 Economics of Contract: Theory
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G28 Financial Institutions and Services: Government Policy and Regulation