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Financial Intermediaries in a Search Theoretic Model of Bilateral Exchange
Division of Research and Statistics, Federal Reserve Board, Washington DC, USA
- 1 Division of Research and Statistics, Federal Reserve Board, Washington DC, USA
Theoretical Economics Letters·Volume 05 (2015)·Pages 24–27·Published 13 January 2015·DOI10.4236/tel.2015.51005
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Abstract
This note investigates an effect of financial intermediaries on bilateral exchange. In a search theo retic 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.
KeywordsSearch Theory
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