Innovations in Financial Services, Relationships, and Risk Sharing
AbstractRelationships between intermediaries and their customers have become increasingly important in recent years. This paper argues that the need for costly ex ante information acquisition and analysis is a major barrier to the participation of investors and firms in sophisticated markets. Long-term relationships between intermediaries and their customers, in which intermediaries provide implicit insurance to customers, can be an effective substitute for costly ex ante investigation. In this way, intermediaries allow firms and investors to reap the benefits of financial markets. Relationships are easiest to sustain when the ongoing benefits to both parties are high. As a result, competition may lower the benefits that can be obtained from relationships.
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Bibliographic InfoArticle provided by INFORMS in its journal Management Science.
Volume (Year): 45 (1999)
Issue (Month): 9 (September)
markets; intermediaries; unforeseen contingencies; misunderstandings; implicit contracts;
Other versions of this item:
- H. Franklin Allen & Douglas Gale, . "Innovation in Financial Services, Relationships and Risk Sharing," Center for Financial Institutions Working Papers 97-26, Wharton School Center for Financial Institutions, University of Pennsylvania.
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