Inter-Company Matching and the Supply of Informed Capital
NOVA School of Business and Economics
Federal Reserve Bank of Chicago
December 19, 2014
Journal of Economic Behavior and Organization, Vol. 111, 2015
We model an economy where it is beneficial for high-type organizations to collaborate with other high types, and where this assortative-matching pattern allows informed financiers to provide inexpensive funds to partner companies of their high-type ventures. The expected funding benefit associated with finding high-type partners increases in the supply of informed capital, which creates an additional incentive for high types to search. Our main result is that, in such a setting, a critical mass of informed capital is sometimes required for an efficient equilibrium to obtain. We provide a novel channel for how the financial sector can impact real outcomes, specifically by affecting matching patterns.
Number of Pages in PDF File: 48
Keywords: financial intermediation, matching, venture capital
JEL Classification: D20, D80, G24, G32, L20
Date posted: February 10, 2012 ; Last revised: January 24, 2015
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