Inter-Company Matching and the Supply of Informed Capital
48 Pages Posted: 10 Feb 2012 Last revised: 24 Jan 2015
Date Written: December 19, 2014
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.
Keywords: financial intermediation, matching, venture capital
JEL Classification: D20, D80, G24, G32, L20
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