Abstract

http://ssrn.com/abstract=1770065
 
 

Citations (13)



 


 



Cream Skimming in Financial Markets


Patrick Bolton


Columbia Business School - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Tano Santos


Columbia Business School; National Bureau of Economic Research (NBER)

Jose A. Scheinkman


Columbia University; Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

February 25, 2011


Abstract:     
We propose a model where agents choose to become entrepreneurs or informed dealers in financial markets. Agents incur costs to become dealers and develop skills for valuing assets. The financial sector comprises a transparent exchange, where uninformed agents trade, and an opaque over-the-counter (OTC) market, where dealers offer attractive terms for the best assets. Dealers provide incentives for entrepreneurs to originate good assets, but the opaqueness of the OTC market allows dealers to extract rents. By siphoning out good assets, the OTC market lowers the quality of assets in the exchange. In equilibrium, dealers’ rents are excessive and attract too much talent to Finance.

Number of Pages in PDF File: 54

JEL Classification: G10, G14

working papers series


Download This Paper

Date posted: February 28, 2011 ; Last revised: June 15, 2012

Suggested Citation

Bolton, Patrick and Santos, Tano and Scheinkman, Jose A., Cream Skimming in Financial Markets (February 25, 2011). Available at SSRN: http://ssrn.com/abstract=1770065 or http://dx.doi.org/10.2139/ssrn.1770065

Contact Information

Patrick Bolton
Columbia Business School - Department of Economics ( email )
3022 Broadway
New York, NY 10027
United States
HOME PAGE: http://www0.gsb.columbia.edu/faculty/pbolton/

Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http://www.ecgi.org
Tano Santos
Columbia Business School ( email )
3022 Broadway
New York, NY 10027
United States
212-854-0489 (Phone)
212-316-9180 (Fax)

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Jose A. Scheinkman (Contact Author)
Columbia University ( email )
420 W. 118th Street
New York, NY 10027
United States
HOME PAGE: http://www.princeton.edu/~joses
Princeton University - Department of Economics ( email )
26 Prospect Avenue
Princeton, NJ 08544
United States
609-258-4020 (Phone)
609-258-6419 (Fax)
HOME PAGE: http://www.princeton.edu/~joses

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Feedback to SSRN


Paper statistics
Abstract Views: 3,317
Downloads: 661
Download Rank: 19,372
Citations:  13
People who downloaded this paper also downloaded:
1. Speculation, Trading and Bubbles
By Jose Scheinkman

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo8 in 0.422 seconds