This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Financing Development: The Role of Information Costs

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Jeremy Greenwood
Juan M. Sanchez
Cheng Wang

Additional information is available for the following registered author(s):

Abstract

How does technological progress in financial intermediation affect the economy? To address this question a costly-state verification framework is embedded into a standard growth model. In particular, financial intermediaries can invest resources to monitor the returns earned by firms. The inability to monitor perfectly leads to firms earning rents. Undeserving firms are financed, while deserving ones are under funded. A more efficient monitoring technology squeezes the rents earned by firms. With technological advance in the financial sector, the economy moves continuously from a credit-rationing equilibrium to a perfectly efficient competitive equilibrium. A numerical example suggests that finance is important for growth.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help file. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.nber.org/papers/w13104.pdf
File Format: application/pdf
File Function:
Download Restriction: Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Publisher Info
Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13104.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length:
Date of creation: May 2007
Date of revision:
Handle: RePEc:nbr:nberwo:13104

Note: EFG CF
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: ().

Related research
Keywords:

Other versions of this item:

Find related papers by JEL classification:
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
O43 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Marcet, Albert & Marimon, Ramon, 1992. "Communication, commitment, and growth," Journal of Economic Theory, Elsevier, vol. 58(2), pages 219-249, December. [Downloadable!] (restricted)
    Other versions:
  2. Andres Erosa & Ana Hidalgo, 2005. "On Capital Market Imperfections as a Source of Low TFP and Economic Rents," Working Papers tecipa-200, University of Toronto, Department of Economics. [Downloadable!]
  3. Shankha Chakraborty & Amartya Lahiri, 2007. "Costly Intermediation And The Poverty Of Nations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(1), pages 155-183, 02. [Downloadable!] (restricted)
    Other versions:
  4. Ellen R. McGrattan & Edward C. Prescott, 2005. "Taxes, regulations, and the value of U.S. and U.K. corporations," Staff Report 309, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  5. Richard Rogerson & Diego Restuccia, 2004. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," 2004 Meeting Papers 69, Society for Economic Dynamics. [Downloadable!]
    Other versions:
  6. Boyd, John H. & Prescott, Edward C., 1986. "Financial intermediary-coalitions," Journal of Economic Theory, Elsevier, vol. 38(2), pages 211-232, April. [Downloadable!] (restricted)
    Other versions:
  7. Quadrini, Vincenzo, 2004. "Investment and liquidation in renegotiation-proof contracts with moral hazard," Journal of Monetary Economics, Elsevier, vol. 51(4), pages 713-751, May. [Downloadable!] (restricted)
  8. Robert Townsend, 1979. "Optimal contracts and competitive markets with costly state verification," Staff Report 45, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  9. Smith, Anthony Jr. & Wang, Cheng, 2006. "Dynamic credit relationships in general equilibrium," Journal of Monetary Economics, Elsevier, vol. 53(4), pages 847-877, May. [Downloadable!] (restricted)
  10. Levine, Ross, 1991. " Stock Markets, Growth, and Tax Policy," Journal of Finance, American Finance Association, vol. 46(4), pages 1445-65, September. [Downloadable!] (restricted)
  11. Boyd, John H & Smith, Bruce D, 1994. "How Good Are Standard Debt Contracts? Stochastic versus Nonstochastic Monitoring in a Costly State Verification Environment," Journal of Business, University of Chicago Press, vol. 67(4), pages 539-61, October. [Downloadable!] (restricted)
  12. Robert M. Townsend & Kenichi Ueda, 2006. "Financial Deepening, Inequality, and Growth: A Model-Based Quantitative Evaluation-super-1," Review of Economic Studies, Blackwell Publishing, vol. 73(1), pages 251-293, 01. [Downloadable!] (restricted)
  13. Andres Erosa, 2001. "Financial Intermediation and Occupational Choice in Development," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(2), pages 303-334, April. [Downloadable!] (restricted)
    Other versions:
  14. Greenwood, Jeremy & Jovanovic, Boyan, 1990. "Financial Development, Growth, and the Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1076-1107, October. [Downloadable!] (restricted)
    Other versions:
  15. repec:cup:macdyn:v:5:y:2001:i:3:p:413-33 is not listed on IDEAS
  16. Bencivenga, V.R. & Smith, B.D., 1988. "Financial Intermediation And Endogenous Growth," RCER Working Papers 124, University of Rochester - Center for Economic Research (RCER).
    Other versions:
  17. Gertler, Mark, 1992. "Financial Capacity and Output Fluctuations in an Economy with Multi-period Financial Relationships," Review of Economic Studies, Blackwell Publishing, vol. 59(3), pages 455-72, July. [Downloadable!] (restricted)
    Other versions:
  18. Li, Wenli & Sarte, Pierre-Daniel G., 2003. "Credit market frictions and their direct effects on U.S. manufacturing fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 28(3), pages 419-443, December. [Downloadable!] (restricted)
  19. Cheng Wang, 2005. "Dynamic costly state verification," Economic Theory, Springer, vol. 25(4), pages 887-916, 06. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Thomas Philippon, 2007. "Financiers vs. Engineers: Should the Financial Sector be Taxed or Subsidized?," NBER Working Papers 13560, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Thomas Philippon, 2007. "Why Has the U.S. Financial Sector Grown so Much? The Role of Corporate Finance," NBER Working Papers 13405, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Diego Restuccia & Richard Rogerson, 2007. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," NBER Working Papers 13018, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
Statistics
Access and download statistics

Did you know? To receive notification of recent additions to the database, subscribe to the free NEP reports.

This page was last updated on 2008-7-24.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.