EconPapers    
Economics at your fingertips  
 

Financing Development: The Role of Information Costs

Jeremy Greenwood, Juan Sanchez and Cheng Wang

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: How does technological progress in financial intermediation affect the economy? To address this question a costly-state verification framework is embedded into a standard growth model. In particular, financial intermediaries can invest resources to monitor the returns earned by firms. The inability to monitor perfectly leads to firms earning rents. Undeserving firms are financed, while deserving ones are under funded. A more efficient monitoring technology squeezes the rents earned by firms. With technological advance in the financial sector, the economy moves continuously from a credit-rationing equilibrium to a perfectly efficient competitive equilibrium. A numerical example suggests that finance is important for growth.

Date: 2007-10-17
New Economics Papers: this item is included in nep-ban and nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22) Track citations by RSS feed

Published in American Economic Review, September 2010, vol. 100 no. 4, pp. 1875-1891

Downloads: (external link)
http://www2.econ.iastate.edu/papers/p5446-2007-10-18.pdf (application/pdf)

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:isu:genres:12848

Access Statistics for this paper

More papers in Staff General Research Papers Archive from Iowa State University, Department of Economics Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070. Contact information at EDIRC.
Bibliographic data for series maintained by Curtis Balmer ().

 
Page updated 2020-01-22
Handle: RePEc:isu:genres:12848