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Diversity of Opinion and Financing of New Technologies

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  • Allen, Franklin
  • Gale, Douglas

Abstract

The objective is to compare the effectiveness of financial markets and financial intermediaries in financing new industries and technologies in the presence of diversity of opinion. In markets, investors become informed about the details of the new industry or technology and make their own investment decisions. In intermediaries, the investment decision is delegated to a manager. She is the only one who needs to become informed, which saves on information costs, but investors may anticipate disagreement with her and be unwilling to provide funds. Financial markets tend to be superior when there is significant diversity of opinion and information is inexpensive.

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File URL: http://econ.as.nyu.edu/docs/IO/9381/RR98-29.PDF
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Bibliographic Info

Paper provided by C.V. Starr Center for Applied Economics, New York University in its series Working Papers with number 98-29.

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Length: 38 pages
Date of creation: 1998
Date of revision:
Handle: RePEc:cvs:starer:98-29

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Postal: C.V. Starr Center, Department of Economics, New York University, 19 W. 4th Street, 6th Floor, New York, NY 10012
Phone: (212) 998-8936
Fax: (212) 995-3932
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Web page: http://econ.as.nyu.edu/object/econ.cvstarr.html
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Postal: C.V. Starr Center, Department of Economics, New York University, 19 W. 4th Street, 6th Floor, New York, NY 10012
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Related research

Keywords: Diversity of opinion; investment; financial markets; financial intermediaries; delegation; Bayesian decision making; uncommon priors;

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