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Financial intermediation and equity investment with costly monitoring

Listed author(s):
  • Giorgio Di Giorgio

This paper studies the efficiency of equilibria in a productive OLG economy where the process of financial intermediation is characterized by costly state verification. Both competitive equilibria and Constrained Pareto Optimal allocations are characterized. It is shown that market outcomes can be socially inefficient, even when a weaker notion than Pareto optimality is considered.

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File URL: https://econ-papers.upf.edu/papers/410.pdf
File Function: Whole Paper
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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 410.

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Date of creation: Sep 1999
Handle: RePEc:upf:upfgen:410
Contact details of provider: Web page: http://www.econ.upf.edu/

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  1. Stephen D. Williamson, 1987. "Costly Monitoring, Loan Contracts, and Equilibrium Credit Rationing," The Quarterly Journal of Economics, Oxford University Press, vol. 102(1), pages 135-145.
  2. Reichlin, Pietro & Siconolfi, Paolo, 1996. "The role of social security in an economy with asymmetric information and financial intermediaries," Journal of Public Economics, Elsevier, vol. 60(2), pages 153-175, May.
  3. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
  4. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
  5. Townsend, Robert M., 1979. "Optimal contracts and competitive markets with costly state verification," Journal of Economic Theory, Elsevier, vol. 21(2), pages 265-293, October.
  6. Azariadis Costas & Smith Bruce D., 1993. "Adverse Selection in the Overlapping Generations Model: The Case of Pure Exchange," Journal of Economic Theory, Elsevier, vol. 60(2), pages 277-305, August.
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