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.
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Publisher Info
Paper provided by Rochester, Business - Financial Research and Policy Studies in its series Papers with number
97-03.
Length: 29 pages Date of creation: 1997 Date of revision: Handle: RePEc:fth:robufr:97-03
Contact details of provider: Postal: UNIVERSITY OF ROCHESTER, WILLIAM E. SIMON GRADUATE SCHOOL OF BUSINESS ADMINISTRATION, Bradley Policy Research Center, ROCHESTER NEW YORK 14627 U.S.A. Email: Web page: http://www.simon.rochester.edu/ More information through EDIRC
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