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Quarterly Journal of Economics Vol. 129 No. 3 2014

Finance and the Preservation of Wealth *

Nicola Gennaioli1,2,3,4; Andrei Shleifer1,2,3,4; Robert W. Vishny1,2,3,4

1 National Bureau of Economic Research · 2 Harvard University · 3 University of Chicago · 4 Bocconi University

open access

Abstract

We introduce the model of asset management developed in Gennaioli, Shleifer, and Vishny (“Money Doctors,” Journal of Finance , forthcoming 2015) 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.

DOI
10.1093/qje/qju012
Volume
129
Issue
3
Pages
1221-1254
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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