EconPapers    
Economics at your fingertips  
 

Financing Development: The Role of Information Costs

Jeremy Greenwood, Juan Sanchez and Cheng Wang

No 14, Economie d'Avant Garde Research Reports from Economie d'Avant Garde

Abstract: To address how technological progress in financial intermediation affects the economy, a costly-state verification framework is embedded into the standard growth model. The framework has two novel ingredients. First, firms differ in the risk/return combinations that they offer. Second, the efficacy of monitoring depends upon the amount of resources invested in the activity. A financial theory of firm size results. Undeserving firms are over financed, deserving ones under funded. Technological advance in intermediation leads to more capital accumulation and a redirection of funds away from unproductive firms toward productive ones. With continued progress, the economy approaches its first-best equilibrium. An extended version of the paper containing some quantitative analysis is available at: http://ssrn.com/abstract=996263

Keywords: financial intermediation; economic development; costly state verification; firm size (search for similar items in EconPapers)
JEL-codes: E13 O11 O16 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-dev, nep-dge and nep-mac
Date: 2007-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28) Track citations by RSS feed

Downloads: (external link)
http://www.jeremygreenwood.net/papers/findev.pdf full text (application/pdf)
None

Related works:
Journal Article: Financing Development: The Role of Information Costs (2010) Downloads
Working Paper: Financing development: the role of information costs (2010) Downloads
Working Paper: Financing development: the role of information costs (2009) Downloads
Working Paper: Financing Development: The Role of Information Costs (2007) Downloads
Working Paper: Financing Development: The Role of Information Costs (2007) Downloads
Working Paper: Financing Development: The Role of Information Costs (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eag:rereps:14

Access Statistics for this paper

More papers in Economie d'Avant Garde Research Reports from Economie d'Avant Garde
Bibliographic data for series maintained by Jeremy Greenwood ().

 
Page updated 2020-01-17
Handle: RePEc:eag:rereps:14