The cost of gathering information about unfamiliar securities may lead to gains from standardization: firms issue a particular security because it is used by other firms. To support standardization as an equilibrium phenomenon, information must be nontransferable (otherwise it might be revealed by prices or the observation of other agents' decisions) and it must be generic (useful in evaluating a number of securities). A competitive equilibrium in which standard contracts are used may be subject to coordination failure: while there always exists a constrained efficient equilibrium, there may also exist Pareto-ranked equilibria. Copyright 1992 by The Review of Economic Studies Limited.
Volume (Year): 59 (1992)
Issue (Month): 4 (October)
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