Inter-Company Matching and the Supply of Informed Capital
University of Texas at Austin
University of Texas at Austin - McCombs School of Business
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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