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Arcand, Jean-Louis
Berkes, Enrico
Panizza, Ugo
Year of Publication: 
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Graduate Institute of International and Development Studies Working Paper 02/2013
This paper develops a simple model with credit rationing and endogenous default risk in which the expectation of a bailout may lead to a financial sector which is too large with respect to the the social optimum. The paper concludes with a short discussion of how this model could be used as a building block for models aimed at endogenizing the probability of a bailout, and discussing the relationship between the size of the finanancial sector and economic growth in the presence of default risk.
Document Type: 
Working Paper

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