Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/211854 
Authors: 
Year of Publication: 
1999
Series/Report no.: 
Bank of Finland Discussion Papers No. 23/1999
Publisher: 
Bank of Finland, Helsinki
Abstract: 
In this paper we study industry equilibrium and the effects of integration under the assumptions that 1) firms must use outside financing and 2) they face a moral hazard problem due to the possibility of taking excessive risks.These are typical features of banking and insurance, for instance.We examine an industry equilibrium where firms choose not to take excessive risks and compare this with the equilibrium in industries that do not have a moral hazard problem.We show that, as markets integrate, competition intensifies and prices fall in both types of industry. In markets with moral hazard there are relatively more exits, a smaller fall in prices and, contrary to the other case, the market value of the industry increases.
Subjects: 
industry equilibrium
outside financing
risk-taking behaviour
market integration
Persistent Identifier of the first edition: 
ISBN: 
951-686-644-1
Document Type: 
Working Paper

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