Financial Intermediation and Credit Market Equilibrium: A Model of Matching Market
AbstractWe analyse an incentive model of financial market where intermediaries with different monitoring technologies are matched with firms with different levels of initial wealth and a proeject. Firms do not have sufficient wealth to cover the project costs and hence, seek external financing. The intermediaries are the potential investors in the market. We model the financial economy as a two-sided matching game and analyse the equilibrium using stability as a solution concept. In equilibrium, the financial contracts are optimal, and payoffs consumed by firms and intermediaries are endogenous. We also show that, in equilibrium, poorer firms have to rely on more informed capital available in the market and suffer from more intensive monitoring.
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Bibliographic InfoPaper provided by Universidad de Guanajuato, Department of Economics and Finance in its series Department of Economics and Finance Working Papers with number EC200301.
Length: 23 pages
Date of creation: Aug 2003
Date of revision:
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Postal: UCEA-Campus Marfil, Fracc. I, El Establo, Guanajuato GTO 36250
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Web page: http://economia.ugto.org/
More information through EDIRC
Financial Intermediation; Moral Hazard; Negatively Assorted Matching;
Find related papers by JEL classification:
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-02-20 (All new papers)
- NEP-FIN-2005-02-20 (Finance)
- NEP-GTH-2005-02-20 (Game Theory)
- NEP-MAC-2005-02-20 (Macroeconomics)
- NEP-MON-2005-02-20 (Monetary Economics)
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