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Multi-lender coalitions in costly state verification models

Renou, Ludovic (2008) 'Multi-lender coalitions in costly state verification models.' Economic Theory, 36 (3). pp. 407-433. ISSN 0938-2259

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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.

Item Type: Article
Uncontrolled Keywords: Costly state verification; Financial intermediation; Diversity of opinions multi-lender coalition; Direct lending; Monitoring
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Jim Jamieson
Date Deposited: 07 Jan 2013 15:19
Last Modified: 07 Jan 2013 15:19
URI: http://repository.essex.ac.uk/id/eprint/5019

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