Standard Securities

Douglas Gale ()

The Review of Economic Studies, 1992, vol. 59, issue 4, 731-755

Abstract: The cost of gathering information about unfamiliar securities may lead to gains from standardization: firms issue a particular security because it is used by other firms. To support standardization as an equilibrium phenomenon, information must be non-transferable (otherwise it might be revealed by prices or the observation of other agents' decisions) and it must be generic (useful in evaluating a number of securities). A competitive equilibrium in which standard contracts are used may be subject to coordination failure: while there always exists a constrained efficient equilibrium, there may also exist Pareto-ranked equilibria.

Date: 1992
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