This paper studies an environment in which the investment opportunities of agents are private information and shows that financial intermediaries arise endogenously within that environment. It establishes that financial intermediaries are part of an efficient arrangement in the sense that they are needed to support the authors’ private information core allocations. These intermediaries, which are coalitions of agents, exhibit the following characteristics in equilibrium: they borrow from and lend to large groups of agents; they produce information about investment projects; and they issue claims that have different state contingent payoffs than claims issued by ultimate borrowers.
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- Prescott, Edward C & Townsend, Robert M, 1984.
"General Competitive Analysis in an Economy with Private Information,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 1-20, February.
- Edward C Prescott & Robert M Townsend, 1997. "General Competitive Analysis in an Economy with Private Information," Levine's Working Paper Archive 1578, David K. Levine.
- Edward C Prescott & Robert M Townsend, 2010.
"Pareto Optima and Competitive Equilibria With Adverse Selection and Moral Hazard,"
Levine's Working Paper Archive
2069, David K. Levine.
- Prescott, Edward C & Townsend, Robert M, 1984. "Pareto Optima and Competitive Equilibria with Adverse Selection and Moral Hazard," Econometrica, Econometric Society, vol. 52(1), pages 21-45, January.
- Williamson, Stephen D., 1986.
"Costly monitoring, financial intermediation, and equilibrium credit rationing,"
Journal of Monetary Economics,
Elsevier, vol. 18(2), pages 159-179, September.
- Stephen D. Williamson, 1984. "Costly Monitoring, Financial Intermediation, and Equilibrium Credit Rationing," Working Papers 583, Queen's University, Department of Economics.
- Joseph G. Haubrich & Robert G. King, 1984.
"Banking and Insurance,"
NBER Working Papers
1312, National Bureau of Economic Research, Inc.
- Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
- Smith, Bruce D., 1984. "Private information, deposit interest rates, and the `stability' of the banking system," Journal of Monetary Economics, Elsevier, vol. 14(3), pages 293-317, November.
- Townsend, Robert M., 1983. "Theories of intermediated structures," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 18(1), pages 221-272, January.
- Robert M. Townsend, 1979.
"Optimal contracts and competitive markets with costly state verification,"
45, Federal Reserve Bank of Minneapolis.
- Townsend, Robert M., 1979. "Optimal contracts and competitive markets with costly state verification," Journal of Economic Theory, Elsevier, vol. 21(2), pages 265-293, October.
- Harris Milton & Townsend, Robert M, 1981. "Resource Allocation under Asymmetric Information," Econometrica, Econometric Society, vol. 49(1), pages 33-64, January.
- Ram T. S. Ramakrishnan & Anjan V. Thakor, 1984. "Information Reliability and a Theory of Financial Intermediation," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 415-432.
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