Advanced Search
MyIDEAS: Login

Financial Intermediation with Risk Aversion

Contents:

Author Info

  • Hellwig, Martin F

Abstract

The paper extends Diamond's (1984) analysis of financial intermediation to allow for risk aversion of the intermediary. As in the case of risk neutrality, the agency costs of external funds provided to an intermediary are relatively small if the intermediary is financing many entrepreneurs with independent returns. Even though the intermediary is adding rather than subdividing risks, the underlying large-numbers argument is not invalidated by the presence of risk aversion. With risk aversion of entrepreneurs as well as the intermediary, financial intermediation provides insurance as well as finance. In contrast to earlier results on optimal intermediation policies under risk neutrality, the paper shows that when an intermediary is financing many entrepreneurs with independent returns, optimal intermediation policies must shift return risks away from risk averse entrepreneurs and impose them on the intermediary or on final investors. Copyright 2000 by The Review of Economic Studies Limited

Download Info

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Economic Studies.

Volume (Year): 67 (2000)
Issue (Month): 4 (October)
Pages: 719-42

as in new window
Handle: RePEc:bla:restud:v:67:y:2000:i:4:p:719-42

Contact details of provider:
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0034-6527

Order Information:
Web: http://www.blackwellpublishing.com/subs.asp?ref=0034-6527

Related research

Keywords:

Other versions of this item:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Karel Janda, 2006. "Lender and Borrower as Principal and Agent," Working Papers IES 2006/24, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jul 2006.
  2. Armonat, Stefan & Pfnür, Andreas, 2002. "Basel II and the German credit crunch?," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 35585, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
  3. Yi Jin & Zhixiong Zeng, 2011. "The Financial and Macroeconomic Implications of Banking Frictions and Banking Riskiness," Monash Economics Working Papers 14-11, Monash University, Department of Economics.
  4. Agenor, Pierre-Richard & Aizenman, Joshua, 2006. "Investment and deposit contracts under costly intermediation and aggregate volatility," International Review of Economics & Finance, Elsevier, vol. 15(3), pages 263-275.
  5. Juha-Pekka Niinimäki & Tuomas Takalo, 2007. "Benchmarking and Comparing Entrepreneurs with Incomplete Information," Finnish Economic Papers, Finnish Economic Association, vol. 20(2), pages 91-107, Autumn.
  6. Tianxi Wang, 2009. "The Allocation of Liability: Why Financial Intermediation?," Economics Discussion Papers 677, University of Essex, Department of Economics.
  7. Zeng, Zhixiong, 2010. "A theory of the non-neutrality of money with banking frictions and bank recapitalization," MPRA Paper 24752, University Library of Munich, Germany.
  8. Niinimäki, Juha-Pekka & Takalo, Tuomas & Kultti, Klaus, 2006. "The role of comparing in financial markets with hidden information," Research Discussion Papers 1/2006, Bank of Finland.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:bla:restud:v:67:y:2000:i:4:p:719-42

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.