I want to deepen my understanding of risks as posed by debt burdens among actors of an economy. After some literature review, it seems the matter is nuanced; points can be made for both sides. I'll present a few points simply for context.


If debt burdens are distributed more uniformly (diffuse), then credit can be extended to many SMEs and likely to benefit employment and other long run growth drivers. Also, less concentrated risk may spread out debt burdens and make servicing more manageable.


If debt burdens are concentrated, then regulators will be able to pursue more effective macroprudential policies. For example, entrusting asset management companies to take care of NPLs and free up bank resources so they may lend more.


Is this a debated position in the broader field of economics or is there clear theoretical framework and/or empirical evidence for one being better than the other for "safe" long run economic growth?

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    $\begingroup$ I think Brian’s answer below is correct— I would add that there’s certainly been some thought and discussion on the trade-offs of concentration on the lending side, though I don’t know that I’ve seen a formal write-up of it. Those discussions are along the dimensions you might expect— greater concentration increases the systemic importance of lending entities, but also simplifies government interventions. $\endgroup$ Jun 16, 2020 at 13:43
  • $\begingroup$ In addition to both correct +1 answers by @dismalscience and Brian Romanchuk the whole issue is even more complex. A debt/financial crisis will not necessarily hamper long run economic growth - there is some evidence it does but the literature on that is not settled as well. So even if diffused debt would be more shock resilient it would not necessary imply that it is better for long-run economic growth. In fact there might be a trade-off between financial stability and economic growth (or there might be not - literature is not completely settled yet although it leans toward the not side). $\endgroup$
    – 1muflon1
    Jun 16, 2020 at 14:09

1 Answer 1


I do not think this question can be answered.

Firstly, the statement “ For example, entrusting asset management companies to take care of NPLs and free up bank resources so they may lend more.” does not follow. There are some administrative advantages to having concentrated borrowers, but this statement does not capture them.

We cannot choose the distribution of borrower size without choosing the distribution of firm size. So this question is: should societies aim for concentrated industries, or break them up? This is a large question, for example, the study of anti-trust law. I don’t think one can summarise that area without just posting an opinion.

If we just want to look at historical examples of debt crises, we can find crises both with distributed and concentrated borrowers. Qualitatively, they will look different, but it will be a matter of opinion which will be safer. E.g. concentrated firms pose the risk of a large planning error. However, it is easier to intervene into one firm. Which is “safer”?

  • $\begingroup$ Fair point. Will try to think of reiterations of this question for the future, but this is helpful for intuition. Thanks. $\endgroup$ Jun 17, 2020 at 2:10

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