ch8 and 9.docx - Financial intermediaries have evolved to...

  • No School
  • AA 1
  • 2

This preview shows page 1 - 2 out of 2 pages.

Financial intermediaries have evolved to reduce transaction costs Economies of scale Expertise Diversification Asymmetric information: buyers and sellers have imperfect information on each other Asymmetric information: adverse selection and moral hazard Adverse selection occurs before the transaction: the people you do transactions with are not the prime candidates for lending (IE people with improper spending habits, poor credit, defaults, etc) Moral hazard arises after the transaction Agency theory analyses how asymmetric information problems affect economic behavior The Lemons Problem: How adverse selection influences financial structure If quality cannot be assessed, the buyer is willing to pay at most a price that reflects average quality Sellers of good quality items will not want to sell at the price for average quality The buyer will decide not to buy at all because all that is left in the market is poor quality items
Image of page 1

Subscribe to view the full document.

Image of page 2
  • Fall '19

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Ask Expert Tutors You can ask You can ask ( soon) You can ask (will expire )
Answers in as fast as 15 minutes