Optimal Delegation, Unawareness, and Financial Intermediation

Nicola Pavoni and Sarah Auster
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Sarah Auster: Bocconi Univesrity

No 1106, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: We study the delegation problem between an investor and a financial intermediary, who is not only privately informed about the state of the world but also has superior awareness of the available investment opportunities. Under some regularity conditions on the state distribution, we show that the intermediary has incentives to make the investor aware of investment opportunities at the extremes, e.g. very risky and very safe projects, while leaving the investor unaware of intermediate investment options.

Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed016:1106

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