Financial Intermediaries in a Search Theoretic Model of Bilateral Exchange

Andrew C. Chang

Division of Research and Statistics, Federal Reserve Board, Washington DC, USA.

DOI: 10.4236/tel.[phone]                

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.

Keywords

Search Theory

Conflicts of Interest

The authors declare no conflicts of interest.

References

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