Finance and the Preservation of Wealth / Nicola Gennaioli, Andrei Shleifer, Robert W. Vishny.

Format:

Book

Author/Creator:

Gennaioli, Nicola.

Contributor:

National Bureau of Economic Research.

Shleifer, Andrei.

Vishny, Robert W.

Series:

Working Paper Series (National Bureau of Economic Research) no. w19117.

NBER working paper series no. w19117

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2013.

Summary:

We introduce the model of asset management developed in Gennaioli, Shleifer, and Vishny (2012) 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 size of the financial sector rises with aggregate wealth, and wealth grows relative to GDP. As a consequence, the ratio of financial income to GDP rises over time, even though fees for given financial services decline. Because the size of the financial sector fluctuates with changes in investor trust, the model can account for the sharp decline of finance in the Great Depression, as well as its slow recovery afterwards. Entry by financial intermediaries as wealth increased in recent years may have further deepened investor trust and encouraged growth of financial income.

Notes:

Print version record

June 2013.