American Economic Review Vol. 109 No. 2 2019
The Social Value of Financial Expertise
open access
Abstract
I study expertise acquisition in a model of trading under asymmetric information. I propose and implement a method to measure r, the ratio of the marginal social value to the marginal private value of expertise. This can be decomposed into three sufficient statistics: traders’ average profits, the fraction of bad assets among traded assets, and the elasticity of good assets traded with respect to capital inflows. I measure r = 0.16 for the junk bond underwriting market. Since this is less than 1, it implies that marginal investments in expertise destroy surplus.
- DOI
- 10.1257/aer.20171735
- Volume
- 109
- Issue
- 2
- Pages
- 556-590
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref