incentives to innovate and financial crises

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1、JournalofFinancialEconomics103(2012)130–148ContentslistsavailableatSciVerseScienceDirectJournalofFinancialEconomicsjournalhomepage:www.elsevier.com/locate/jfec$Incentivestoinnovateandfinancialcrisesa,b,nAnjanV.ThakoraEuropeanCorporateGovernanceInstitute(ECGI),EuropebWashingtonUniversityin

2、St.Louis,OlinBusinessSchool,OneBrookingsDrive,CampusBox1133,St.Louis,MO63130,UnitedStatesarticleinfoabstractArticlehistory:InthispaperIdevelopamodelofacompetitivefinancialsystemwithunrestrictedbutReceived11December2010costlyentryandanendogenouslydeterminednumberofcompetingfinancialinstitu-

3、Receivedinrevisedformtions(‘‘banks’’forshort).Bankscanmakestandardloansonwhichplentifulhistorical15February2011dataareavailableandunanimousagreementexistsondefaultprobabilities.OrbanksAccepted18March2011caninnovateandmakenewloansonwhichlimitedhistoricaldataareavailable,leadingAvailableon

4、line17August2011topossibledisagreementoverdefaultprobabilities.Inequilibrium,banksmakezeroJELclassification:profitsonstandardloansandpositiveprofitsoninnovativeloans,whichengendersG21innovationincentivesforbanks.ButinnovationbringswithittheriskthatinvestorsG24coulddisagreewiththebankthatthe

5、loanisworthyofcontinuedfundingandhenceG29couldwithdrawfundingataninterimstage,precipitatingafinancialcrisis.Thedegreeofinnovationinthefinancialsystemisdeterminedbythistrade-off.Welfareimplica-Keywords:tionsoffinancialinnovationandmechanismstoreducetheprobabilityofcrisesareFinancialinnovatio

6、nDisagreementdiscussed.Financialcrises&2011ElsevierB.V.Allrightsreserved.1.IntroductionForintheend,economistsaresocialscientists,tryingtounderstandtherealworld.AndthefinancialcrisishasFinancialcriseshavelongbeenarecurringphenomenon.changedthatworld.’’Therecentsubprimelendingcrisiscommence

7、dwithlittleWhydofinancialcrisesoccur?Whiletherearemanywarninganddeepenedquickly.Theimportanceofthiscrisistheories,theycanbebroadlyclassifiedintothreegroups.wasunderscoredbyTheEconomist(2009)‘‘OfalltheOnegroupisbasedonthenotionthatcrisesarisefromeconomicbubblesthathavebeenpr