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- Title
Multi-lender coalitions in costly state verification models.
- Authors
Renou, Ludovic
- Abstract
The paper analyzes the endogenous formation of a financial intermediary, modelled as a multi-lender coalition, as the trade-off between economies of scale in monitoring and a ‘cost’ associated with the partial loss of control over the investments the multi-lender coalition makes. In contrast with previous contributions (e.g., Williamson in J Monet Econ 18:159–179, 1986), the model can account for the coexistence of financial intermediation and direct lending (a non-trivial equilibrium). We prove the existence of such non-trivial equilibria and provide a complete characterization of them. In particular, the stronger the diversity of opinions, the smaller the coalition size is.
- Subjects
FINANCIAL institutions; MONEYLENDERS; ECONOMIES of scale; AGENCY theory; RISK management in business; ECONOMIC equilibrium
- Publication
Economic Theory, 2008, Vol 36, Issue 3, p407
- ISSN
0938-2259
- Publication type
Article
- DOI
10.1007/s00199-007-0274-z