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Moral Hazard and Information Sharing: A Model of Financial Information Gathering Agencies
Author(s) -
MILLON MARCIA H.,
THAKOR ANJAN V.
Publication year - 1985
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1985.tb02391.x
Subject(s) - moral hazard , information asymmetry , independence (probability theory) , information sharing , actuarial science , risk aversion (psychology) , business , quality (philosophy) , information quality , microeconomics , hazard , complete information , principal–agent problem , expected utility hypothesis , economics , finance , computer science , information system , financial economics , incentive , political science , law , organic chemistry , philosophy , mathematics , chemistry , world wide web , corporate governance , epistemology , statistics
We propose a theory of information gathering agencies in a world of informational asymmetries and moral hazard. In a setting in which true firm values are certified by screening agents whose payoffs depend on noisy ex post monitors of information quality, the formation of information gathering agencies (groups of screening agents) is justified on two grounds. First, it enables screening agents to diversify their risky payoffs. Second, it allows information sharing. The first effect itself is insufficient despite the risk aversion of screening agents and the stochastic independence of the monitors used to compensate them.