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Financial architecture: the role of higher order beliefs

Renou, Ludovic (2002) 'Financial architecture: the role of higher order beliefs.' Economics Bulletin, 28 (11). A0. ISSN 0305-9049

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Abstract

This paper generalizes a costly state verification model à la Townsend (1979) along two dimensions: 1) diversity of opinion and 2) endogenous formation of a financial intermediary, modeled as a multi-lender coalition. Main results are 1) lenders forming the coalition are neither too optimistic nor too pessimistic, 2) under some parameter conditions, the stronger the disagreement between any lender, the smaller the coalition size and 3) it is desirable to exclude some lenders from the project financing. It is also shown that the standard CSV model (Williamson (1986)) is a limit case of this generalized CSV model.

Item Type: Article
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Jim Jamieson
Date Deposited: 07 Jan 2013 16:34
Last Modified: 07 Jan 2013 16:34
URI: http://repository.essex.ac.uk/id/eprint/5023

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