IDEAS home Printed from https://ideas.repec.org/p/fth/pennfi/16-87.html
   My bibliography  Save this paper

Incomplete and the Endogeneity of Central Banking

Author

Listed:
  • Gary Gorton

Abstract

In a model with incomplete markets, and agents privately producing a circulating media of exchange to coordinate trade, it is shown that closing another market can be Pareto-improving. Producing private money is costly because contracts with the money issuers must be enforced, creating agency costs. By closing the market for trading the circulating media, agents endogenously create an information asymmetry which can result in banking panics. The information asymmetry is desirable, however, because it creates externalities which force banks to cooperate for mutual regulation and insurance for their monies, thus reducing agency costs. The self-enforcing cooperative coalition of banks replaces the market in enforcing the private money contracts. Agents relying on this unobservable enforcement are said to have "confidence" in the banking system.

Suggested Citation

  • Gary Gorton, "undated". "Incomplete and the Endogeneity of Central Banking," Rodney L. White Center for Financial Research Working Papers 16-87, Wharton School Rodney L. White Center for Financial Research.
  • Handle: RePEc:fth:pennfi:16-87
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fth:pennfi:16-87. 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: (Thomas Krichel). General contact details of provider: http://edirc.repec.org/data/rwupaus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.