Transaction Contracts

Gary Gorton and George Pennacchi

Rodney L. White Center for Financial Research Working Papers from Wharton School Rodney L. White Center for Financial Research

Abstract: We model the demand for transactions services and liquidity in an economy with asymmetrically informed agents. It is shown that informed agents can systematically take advantage of agents who are relatively uninformed but who have unexpected needs to trade. This causes certain financial contracts to endogenously arise because they provide a type of "protection" to the uninformed agents. These contracts have the characteristics of creating a security with a safe return from underlying assets with certain returns. Intermediaries that resemble banks are examples of such a contract, and we provide a rationale for deposit insurance in this context. However, a commercial paper market in conjunction with intermediaries resembling money market mutual funds is another financial contract which provides this same transaction, service, and may well be preferred to the bank financial contract. Deposit insurance would not be needed in this later case, though the need for a government debt market may arise.

References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
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:fth:pennfi:34-88

Access Statistics for this paper

More papers in Rodney L. White Center for Financial Research Working Papers from Wharton School Rodney L. White Center for Financial Research Contact information at EDIRC.
Bibliographic data for series maintained by Thomas Krichel ().