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Brokerage Commissions and Information Allocation

Eugene Kandel () and P. Irvine

Working Papers from Rochester, Business - Financial Research and Policy Studies

Abstract: This paper studies contracts between brokers and investors when investors are heterogeneous and their types are non-contractible. We identify two novel features of the commission contract (in addition to the risk-sharing argument suggested in Brennan and Chordia 1993) wich help explain its popularity: first commission extracts quasi-rents due to investors' unwillingness to incure additional cost of splitting the transaction. Second, by using a commission schedule brokers auction the early access to information among clients.

Keywords: INVESTMENTS; BROKERS; CONTRACTS (search for similar items in EconPapers)
JEL-codes: G10 E22 (search for similar items in EconPapers)
Pages: 29 pages
Date: 1997
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