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

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  • Millon, Marcia H
  • Thakor, Anjan V

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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Suggested Citation

  • Millon, Marcia H & Thakor, Anjan V, 1985. "Moral Hazard and Information Sharing: A Model of Financial Information Gathering Agencies," Journal of Finance, American Finance Association, vol. 40(5), pages 1403-1422, December.
    • Handle: RePEc:bla:jfinan:v:40:y:1985:i:5:p:1403-22
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