TITLE:
Financial Intermediaries in a Search Theoretic Model of Bilateral Exchange
AUTHORS:
Andrew C. Chang
KEYWORDS:
Search Theory
JOURNAL NAME:
Theoretical Economics Letters,
Vol.5 No.1,
January
30,
2015
ABSTRACT: This
note investigates an effect of financial intermediaries on bilateral exchange.
In a search theoretic framework, it is possible for Pareto
inefficient outcomes in bilateral exchanges between firms and laborers,
when firms are forced to secure liquidity through financial intermediaries and
are unable to communicate the value of the firm to the intermediary. The
quantity of labor supplied to firms in the model is below the Pareto optimal
level.