Markets with Multidimensional Private Information

Robert Shimer and Veronica Guerrieri
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Veronica Guerrieri: University of Chicago

No 1192, 2012 Meeting Papers from Society for Economic Dynamics

Abstract: This paper explores the tension between risk sharing and risk taking linked to securitization. Financial development typically leads to an increase in securitization that helps financial institutions to share idyiosincratic risk. By increasing expected returns, risk sharing tends to reduce the incentive to pay monitoring costs and spurs a wave of easy lending. This generates an increase in credit access, but at the same time makes financial institutions more exposed to risk. As a result, small aggregate shocks may generate large financial crises.

Date: 2012
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Related works:
Journal Article: Markets with Multidimensional Private Information (2018)
Working Paper: Markets with Multidimensional Private Information (2014)
Working Paper: Markets with Multidimensional Private Information (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed012:1192

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