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Information Reliability and a Theory of Financial Intermediation

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  • Ram T. S. Ramakrishnan
  • Anjan V. Thakor

Abstract

This paper is an analysis of when it will be beneficial for agents engaged in the production of information to form coalitions. The model is cast in a financial market framework, thus leading to an identification of conditions sufficient for the existence of financial intermediaries. Intermediation is shown to improve welfare if informational asymmetries are present, and the information generated to rectify these asymmetries is potentially unreliable. The usual appeal to transactions costs to explain intermediation is not needed.

Suggested Citation

  • 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.
  • Handle: RePEc:oup:restud:v:51:y:1984:i:3:p:415-432.
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