Paper #410

Title:

Financial intermediation and equity investment with costly monitoring

Author:

Giorgio Di Giorgio

Date:

September 1999

Abstract:

This paper studies the efficiency of equilibria in a productive OLG economy where the process of financial intermediation is characterized by costly state verification. Both competitive equilibria and Constrained Pareto Optimal allocations are characterized. It is shown that market outcomes can be socially inefficient, even when a weaker notion than Pareto optimality is considered.

Keywords:

Financial intermediation, costly state verification, Constrained Pareto Optimality

JEL codes:

E44, E62

Area of Research:

Finance and Accounting

Published in:

International Review of Economcis and Finance, vol.11, 2002

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