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Brokerage Commissions and Information Allocation

Author

Listed:
  • Kandel, E.
  • Irvine, P.

Abstract

This paper studies contracts between brokers and investors when investors are heterogeneous and their types are non-contractible. We identify two novel features of the commission contract (in addition to the risk-sharing argument suggested in Brennan and Chordia 1993) wich help explain its popularity: first commission extracts quasi-rents due to investors' unwillingness to incure additional cost of splitting the transaction. Second, by using a commission schedule brokers auction the early access to information among clients.

Suggested Citation

  • Kandel, E. & Irvine, P., 1997. "Brokerage Commissions and Information Allocation," Papers 97-03, Rochester, Business - Financial Research and Policy Studies.
    • Handle: RePEc:fth:robufr:97-03
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    Cited by:

    1. Venezia, Itzhak & Galai, Dan & Shapira, Zur, 1999. "Exclusive vs. independent agents: a separating equilibrium approach," Journal of Economic Behavior & Organization, Elsevier, vol. 40(4), pages 443-456, December.

    More about this item

    Keywords

    INVESTMENTS ; BROKERS ; CONTRACTS;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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