The emergence and growth of financial intermediaries in an economy with nonzero transaction costs and asymmetric information

The economic analysis of financial intermediaries has been a growing field. The goal of many works in this area has been to show that contractual arrangements can lead to symmetric Pareto optimal allocations in an economy with asymmetric private information.In this thesis, financial intermediaries should be understood as coalitions of professionals producing information about the value of firms. Within this framework of analysis, I challenge the prevailing view that economies of scale and risk diversification are the most important explanatory variables for the emergence of financial intermediaries. Instead, I develop an explanation for this emergence based on the formation of coalitions designed to internalize risks but also taking into consideration organizational costs and externalities in the production of information. A microeconomic stochastic model is used, assuming that the sets of firms, investors, and information producers (financial intermediaries) operate in a highly competitive environment under information asymmetry before and after the loan contract is formed.U of I OnlyETDs are only available to UIUC Users without author permissio