The Allocation of Liability: Why Financial Intermediation?
The paper proposes that the organization of financial markets is decided by the allocation of the liability to repay investors. Based on the liability allocation, the paper examines all possible modes of organizing finance and monitoring in an economy a la Townsend (1979). The equilibrium mode is either Financial Intermediation (FI) where the monitor alone takes the liability, or Conglomeration where it is taken by a Conglomerate composed of entrepreneurs and the monitor. Conglomeration also implements the benefit of diversification, which thus does not drive FI. Moreover, opposed to what Diamond (1984) would predict, monitoring costs advantage FI.
|Date of creation:||03 Nov 2009|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.essex.ac.uk/economics/
More information through EDIRC
|Order Information:|| Postal: Discussion Papers Administrator, Department of Economics, University of Essex, Wivenhoe Park, Colchester CO4 3SQ, U.K.|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Holmstrom, Bengt & Tirole, Jean, 1997.
"Financial Intermediation, Loanable Funds, and the Real Sector,"
The Quarterly Journal of Economics,
MIT Press, vol. 112(3), pages 663-91, August.
- Holmström, Bengt & Tirole, Jean, 1994. "Financial Intermediation, Loanable Funds and the Real Sector," IDEI Working Papers 40, Institut d'Économie Industrielle (IDEI), Toulouse.
- Bengt Holmstrom & Jean Tirole, 1994. "Financial Intermediation, Loanable Funds and the Real Sector," Working papers 95-1, Massachusetts Institute of Technology (MIT), Department of Economics.
- Mookherjee, Dilip & Png, Ivan, 1989. "Optimal Auditing, Insurance, and Redistribution," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 399-415, May.
- Gary Gorton & Andrew Winton, 2002.
NBER Working Papers
8928, National Bureau of Economic Research, Inc.
- Oliver Hart & John Moore, 1988.
"Property Rights and the Nature of the Firm,"
495, Massachusetts Institute of Technology (MIT), Department of Economics.
- Hellwig, Martin, 1998.
"Financial Intermediation with Risk Aversion,"
Sonderforschungsbereich 504 Publications
98-39, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
- Javier Diaz-Gimenez & Edward C. Prescott & Terry Fitzgerald & Fernando Alvarez, 1992.
"Banking in computable general equilibrium economies,"
153, Federal Reserve Bank of Minneapolis.
- Diaz-Gimenez, Javier & Prescott, Edward C. & Fitzgerald, Terry & Alvarez, Fernando, 1992. "Banking in computable general equilibrium economies," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 533-559.
- Stephen D. Williamson, 1984.
"Costly Monitoring, Financial Intermediation, and Equilibrium Credit Rationing,"
583, Queen's University, Department of Economics.
- Williamson, Stephen D., 1986. "Costly monitoring, financial intermediation, and equilibrium credit rationing," Journal of Monetary Economics, Elsevier, vol. 18(2), pages 159-179, September.
- Fernando Alvarez & Terry Fitzgerald, 1992. "Banking in computable general equilibrium economies: technical appendices I and II," Staff Report 155, Federal Reserve Bank of Minneapolis.
- Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 393-414, July.
- Philip Bond, 2004. "Bank and Nonbank Financial Intermediation," Journal of Finance, American Finance Association, vol. 59(6), pages 2489-2529, December.
When requesting a correction, please mention this item's handle: RePEc:esx:essedp:677. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Essex Economics Web Manager)
If references are entirely missing, you can add them using this form.