Non-uniform wealth distribution in a simple spatial banking model

MONTES ROJAS, GABRIEL VICTORIO

JOURNAL OF APPLIED ECONOMICS

CENTRO DE ESTUDIOS MACROECONÓMICOS DE ARGENTINA

Año: 2008 vol. 11 p. 145 - 165

1514-0326

This paper uses a static spatial banking model with a non-uniform wealth distribution to provide theoretical assessments for differences in banks’ prices and locations across regions. It assumes imperfect information, where banks know more about individuals if they are “near” the bank and individuals incur in a cost proportional to this distance to show the viability of their projects to the bank. A free entry model is constructed to account for banks’ tendency to concentrate in rich regions and to charge lower prices. Comparative statics exercises show the effect of changes in the monitoring technology and wealth dispersion.