The Adverse Selection Approach to Financial Intermediation: Some Characteristics of the Equilibrium Financial Structure

20 Pages Posted: 15 Nov 2012

See all articles by John A. Weinberg

John A. Weinberg

Federal Reserve Banks - Federal Reserve Bank of Richmond

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 1995

Abstract

This paper examines an adverse selection economy in which efficient resource allocation is supported by intermediary contracts (coalitions). Agents differ along an ex ante publicly observable dimension, so that the equilibrium arrangement yields a diverse set of financial arrangements among borrowers, lenders and intermediaries. Loans made by intermediaries would appear to be mispriced relative to a naive benchmark that ignores the (unobservable) adverse selection aspects of the environment. The model also yields an equilibrium mix of intermediated and direct finance which is broadly consistent with popular notions about the determinants of that mix.

Suggested Citation

Weinberg, John A., The Adverse Selection Approach to Financial Intermediation: Some Characteristics of the Equilibrium Financial Structure (December 1, 1995). Federal Reserve Bank of Richmond Working Paper No. 95-5, Available at SSRN: https://ssrn.com/abstract=2127261 or http://dx.doi.org/10.2139/ssrn.2127261

John A. Weinberg (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States
804-697-8205 (Phone)
804-697-8255 (Fax)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
53
Abstract Views
615
Rank
681,640
PlumX Metrics