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The Social Value of Financial Expertise

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  • Pablo Kurlat

    (Stanford University)

Abstract

I study expertise acquisition in a model of trading under asymmetric information. I propose and implement a method to measure r, the ratio of the marginal social value to the marginal private value of expertise. This can be decomposed into three sufficient statistics: traders’ average profits, the fraction of bad assets among traded assets and the elasticity of good assets traded with respect to capital inflows. For junk bond underwriting I measure r = 0.18 and for venture capital I measure r = 0.73. In both cases this is less than one, which implies that marginal investments in expertise destroy surplus.

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  • Pablo Kurlat, 2017. "The Social Value of Financial Expertise," 2017 Meeting Papers 134, Society for Economic Dynamics.
    • Handle: RePEc:red:sed017:134
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    Cited by:

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    2. Asano, Koji, 2021. "Managing Financial Expertise," MPRA Paper 107665, University Library of Munich, Germany.
    3. Tobias Dieler & Sonny Biswas & Giacomo Calzolari & Fabio Castiglionesi, 2023. "Asset Trade, Real Investment, and a Tilting Financial Transaction Tax," Management Science, INFORMS, vol. 69(4), pages 2401-2424, April.
    4. Kirill Shakhnov, 2022. "The Allocation of Talent: Finance versus Entrepreneurship," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 46, pages 161-195, October.
    5. Laurent Barras & Patrick Gagliardini & Olivier Scaillet, 2022. "Skill, Scale, and Value Creation in the Mutual Fund Industry," Journal of Finance, American Finance Association, vol. 77(1), pages 601-638, February.
    6. Kurlat, Pablo, 2021. "Investment externalities in models of fire sales," Journal of Monetary Economics, Elsevier, vol. 122(C), pages 102-118.

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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L84 - Industrial Organization - - Industry Studies: Services - - - Personal, Professional, and Business Services

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