Access to Credit Market and the Role of Intermediation

This study analyzes how imperfect information regarding collateral value affects credit market access, liquidity, and aggregate economic wealth. Building upon a framework adapted from Gorton and Ordonez (2014), we introduce an financial intermediary as a distinct strategic economic agent designed to optimize the matching process between the demand and supply of credit. The intermediary possesses specialized evaluation technology capable of determining the true quality of collateral at a cost ω, allowing lenders to substitute their high independent information production cost, γ, with a lower intermediation fee, α (α < γ). However, delegating information production introduces agency problems, specifically the threat of unfair behavior through borrower-intermediary collusion via side payments (δ) to misreport bad collateral as good. We derive the optimal contract boundaries, characterizing the exact lower bound (α0 = ω) and upper bound (αc) required to ensure truthful reporting in an information-sensitive regime without collusion. Our comparative statics demonstrate that by minimizing resource waste during information acquisition, efficient intermediation expands borrower expected profits relative to un-intermediated regimes, safely prevents dangerous pooling-induced credit booms, and optimizes the distribution of economic liquidity to maximize total societal wealth.