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Moral Hazard and Information Sharing: A Model of Financial Information Gathering Agencies

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Author Info
Marcia H. Millon (Boston College)
Anjan V. Thakor (Olin School of Business, Washington University)

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Abstract

We propose a theory of information gathering agencies in a world of informational asymmetries and moral hazard. In a setting in which true firm values are certified by screening agents whose payoffs depend on noisy ex post monitors of information quality, the formation of information gathering agencies (groups of screening agents) is justified on two grounds. First, it enables screening agents to diversify their risky payoffs. Second, it allows information sharing. The first effect itself is insufficient despite the risk aversion of screening agents and the stochastic independence of the monitors used to compensate them.

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Paper provided by EconWPA in its series Finance with number 0411024.

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Length: 21 pages
Date of creation: 10 Nov 2004
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Handle: RePEc:wpa:wuwpfi:0411024

Note: Type of Document - pdf; pages: 21
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Web page: http://129.3.20.41

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G - Financial Economics

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  1. Gonedes, Nicholas J, 1976. "The Capital Market, the Market for Information, and External Accounting," Journal of Finance, American Finance Association, vol. 31(2), pages 611-30, May. [Downloadable!] (restricted)
  2. Diamond, Douglas W & Verrecchia, Robert E, 1982. " Optimal Managerial Contracts and Equilibrium Security Prices," Journal of Finance, American Finance Association, vol. 37(2), pages 275-87, May. [Downloadable!] (restricted)
  3. Baron, David P, 1979. "On the Relationship between Complete and Incomplete Financial Market Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(1), pages 105-17, February. [Downloadable!] (restricted)
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(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. Forster, Josef, 2008. "The Optimal Regulation of Credit Rating Agencies," Discussion Papers in Economics 5169, University of Munich, Department of Economics. [Downloadable!]
  2. Anette Boom, . "A Monopolistic Credit Rating Agency," Papers 011, Departmental Working Papers. [Downloadable!]
  3. Yuk-Shee Chan & Stuart I. Greenbaum & Anjan V. Thakor, 2004. "Information Reusability, Competition and Bank Asset Quality," Finance 0411049, EconWPA. [Downloadable!]
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  4. David Brookfield, Phillip Ormrod, 2000. "Credit agency regulation and the impact of credit ratings in the international bond market," European Journal of Finance, Taylor and Francis Journals, vol. 6(4), pages 311-331, December. [Downloadable!] (restricted)
  5. Stuart I. Greenbaum & Anjan V. Thakor, 2004. "Bank Funding Modes," Finance 0411052, EconWPA. [Downloadable!]
  6. Michael Breuer, 2001. "Finanzintermediaere - Groessennachteile und Spezialisierungsvorteile," Working Papers 0103, University of Zurich, Socioeconomic Institute. [Downloadable!]
  7. Spyros Pagratis, . "Asset pricing, asymmetric information and rating announcements: does benchmarking on ratings matter?," Bank of England working papers 265, Bank of England. [Downloadable!]
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  9. Tykvová, Tereza & Schertler, Andrea, 2006. "Rivals or partners? : Evidence from Europe's international private equity deals," ZEW Discussion Papers 06-91, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  10. Giovanni Ferri & Li-gang Liu, 2005. "Assessing the effort of rating agencies in emerging economies: Some empirical evidence," European Journal of Finance, Taylor and Francis Journals, vol. 11(3), pages 283-295, June. [Downloadable!] (restricted)
  11. Antonio Jiménez-Martínez, 2006. "A model of interim information sharing under incomplete information," International Journal of Game Theory, Springer, vol. 34(3), pages 425-442, October. [Downloadable!] (restricted)
  12. Galina Hale, 2005. "Courage to Capital? A Model of the Effects of Rating Agencies on Sovereign Debt Roll–over," The Institute for International Integration Studies Discussion Paper Series iiisdp062, IIIS. [Downloadable!]
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  13. Mark Carlson & Galina Hale, 2006. "Rating Agencies and Sovereign Debt Rollover," Topics in Macroeconomics, Berkeley Electronic Press, vol. 6(2), pages 1375-1375. [Downloadable!] (restricted)
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