Working Paper: CEPR ID: DP9890
Authors: Nicola Gennaioli; Andrei Shleifer; Robert Vishny
Abstract: We introduce the model of asset management developed in Gennaioli, Shleifer, and Vishny (GSV, 2014) 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 ratio of financial income to GDP increases with the ratio of aggregate wealth to GDP. Both rise along the convergence path to steady state growth. We examine several further implications of the model for management fees, unit costs of finance, and the consequences of shocks to trust and to the capital stock.
Keywords: finance; income share; wealth preservation
JEL Codes: E00; G00
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| wealth-to-GDP ratio (D31) | financial income (G29) |
| capital-to-GDP ratio (E22) | financial income (G29) |
| capital-to-GDP ratio (E22) | share of financial income in GDP (E25) |
| shocks to trust (D80) | financial sector size (G21) |
| shocks to trust (D80) | financial intermediation (G20) |
| financial income (G29) | management fees (G19) |