Many contributions to the literature on competition in banking use the Panzar and Rosse test (1987). This test encompasses a variety of market outcomes assuming firms maximize profits. However, when applied to the banking industry, this assumption may not be always valid as banks sometimes may...

In the current recession, politicians grant state aid of yet unknown dimensions. But what is the most efficient measure for granting such aid? We use a theoretical model with firms that differ in their creditworthiness and compare different types of direct subsidies with indirectly subsidized...