Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
10476316 | Journal of Financial Intermediation | 2005 | 31 Pages |
Abstract
This paper shows how informed financial intermediaries can reduce their trading competition by designing optimal incentive compatible contracts for the sale of information. With fund management contracts-indirect sale of information-banks can credibly commit to collaborate and add noise into prices. This is a way to circumvent the Grossman and Stiglitz (1980) paradox: when information is costly, by committing to add noise, the banks can recover the cost of collecting information and enter the market. By contrast, when information is costless, even with a large number of sellers of information entering the market prices are not fully informative.
Related Topics
Social Sciences and Humanities
Business, Management and Accounting
Strategy and Management
Authors
Laurent Germain,