The Allocation of Liability: Why Financial Intermediation?
نویسنده
چکیده
The paper proposes that the organization of nancial markets is decided by the allocation of the liability to repay investors. Based on the liability allocation, the paper examines all possible modes of organizing nance and monitoring in an economy a la Townsend (1979). The equilibrium mode is either Financial Intermediation (FI) where the monitor alone takes the liability, or Conglomeration where it is taken by a Conglomerate composed of entrepreneurs and the monitor. Conglomeration also implements the bene t of diversi cation, which thus does not drive FI. Moreover, opposed to what Diamond (1984) would predict, monitoring costs advantage FI.
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