The role of comparing in financial markets with hidden information
This paper studies how comparing can be used to provide information in financial markets in the presence of a hidden characteristics problem. Although an investor cannot precisely estimate the future returns of an entrepreneur’s projects, the investor can mitigate the asymmetric information problem by ranking different entrepreneurs and financing only the very best ones. Information asymmetry can be eliminated with certainty if the number of compared projects is sufficiently large. Because comparing favours centralised information gathering, it creates a novel rationale for the establishment of a financial intermediary.
|Date of creation:||01 Jan 2006|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.suomenpankki.fi/en/
More information through EDIRC
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.:
- Gary Gorton & Andrew Winton, 2002.
NBER Working Papers
8928, National Bureau of Economic Research, Inc.
- V. Cerasi & S. Daltung, 1995.
"The Optimal Size of a Bank: Costs and Benefits of Diversification,"
Departmental Working Papers
1995-05, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
- Cerasi, Vittoria & Daltung, Sonja, 2000. "The optimal size of a bank: Costs and benefits of diversification," European Economic Review, Elsevier, vol. 44(9), pages 1701-1726, October.
- Pagano, Marco & Jappelli, Tullio, 1993.
" Information Sharing in Credit Markets,"
Journal of Finance,
American Finance Association, vol. 48(5), pages 1693-1718, December.
- Bergemann, Dirk & Hege, Ulrich, 1998.
"Venture capital financing, moral hazard, and learning,"
Journal of Banking & Finance,
Elsevier, vol. 22(6-8), pages 703-735, August.
- Bergemann, Dirk & Hege, Ulrich, 1997. "Venture Capital Financing, Moral Hazard and Learning," CEPR Discussion Papers 1738, C.E.P.R. Discussion Papers.
- Bester, Helmut, 1985. "Screening vs. Rationing in Credit Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 75(4), pages 850-55, September.
- Hellwig, Martin, 1998.
"Financial Intermediation with Risk Aversion,"
Sonderforschungsbereich 504 Publications
98-39, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
- Ramakrishnan, Ram T S & Thakor, Anjan V, 1984. "Information Reliability and a Theory of Financial Intermediation," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 415-32, July.
- Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
- Broecker, Thorsten, 1990. "Credit-Worthiness Tests and Interbank Competition," Econometrica, Econometric Society, vol. 58(2), pages 429-52, March.
- Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 393-414, July.
- HEGE, Ulrich & BERGEMANN, Dirk, 2002.
"The value of benchmarking,"
Les Cahiers de Recherche
752, HEC Paris.
When requesting a correction, please mention this item's handle: RePEc:hhs:bofrdp:2006_001. 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: (Minna Nyman)
If references are entirely missing, you can add them using this form.