Review of Economic Studies Vol. 51 No. 3 1984

Information Reliability and a Theory of Financial Intermediation

Ram T. S. Ramakrishnan¹; Anjan V. Thakor^2,3

¹ Massachusetts Institute of Technology · ² Northwestern University · ³ Indiana University

Abstract

This paper is an analysis of when it will be beneficial for agents engaged in the production of information to form coalitions. The model is cast in a financial market framework, thus leading to an identification of conditions sufficient for the existence of financial intermediaries. Intermediation is shown to improve welfare if informational asymmetries are present, and the information generated to rectify these asymmetries is potentially unreliable. The usual appeal to transactions costs to explain intermediation is not needed.

DOI

10.2307/2297431

Volume

51

Issue

3

Pages

415

Sources

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