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Dissertation Information for Douglas Diamond

NAME:
- Douglas Diamond
- (Alias) Douglas W. Diamond
- (Alias) Douglas Warren Diamond

DEGREE:
- Ph.D.

DISCIPLINE:
- Finance

SCHOOL:
- Yale University (USA) (1980)

ADVISORS:
- None

COMMITTEE MEMBERS:
- None

MPACT Status: Incomplete - Inspected

Title: ESSAYS ON INFORMATION AND FINANCIAL INTERMEDIATION

Abstract: "This dissertation consists of three essays on the economics of information. The first essay analyzes the Rational Expectations equilibria of an economy where investors who have asymmetric information about production technique use the equilibrium price as a source information. It is assumed that investors are risk neutral and that there are two states of nature. It is shown that, depending on the endowment of goods, either a Rational Expectations equilibrium which reveals all information or one that reveals no information will exist, while for other endowments no Rational Expectations equilibrium will exist. The strategy which uniformed investors use to obtain information from the equilibrium price is analyzed. It is shown that when investors have diverse information, the equilibrium price cannot reveal the aggregation of their information.

The second essay presents a partial equilibrium model of a production economy where equilibrium prices are assumed not to reveal information. It is shown that the collection of costly information results in economies of scale in production. Firms are viewed as mechanisms which take advantage of informational economies of scale in production by facilitating the delegation of information collection to a manager. Incentive contracts are derived which induce managers to collect information, use it efficiently and to signal their information to potential investors. It is shown that if a manager is provided with incentives for efficient production but is not induced to signal, then outside investors will have an incentive to collect information duplicating that of the manager. If a manager is induced to signal, then it is shown that investors will not produce information, and the delegation of information collection will be achieved.

The third essay presents a partial equilibrium model of an economy in which even the Pareto optimal managerial incentive contracts have costs associated with them, and considers the role of financial intermediaries in the efficient provision of incentives. A risk neutral individual is endowed with a profitable investment project with a minimum scale which far exceeds his wealth. Outside financing from many other investors is required to undertake the project. Pareto optimal managerial incentive contracts are characterized, and it is shown that costly direct monitoring of the manager can reduce the costs of providing incentives. Because there are many outside investors, the total cost of independent monitoring by each is high. The feasibility of appointing an agent to monitor the manager is examined. The second agent, interpreted as a financial intermediary, must also be provided with incentives. It is demonstrated that the costs of providing these incentives can be made arbitrarily small if the financial intermediary holds a sufficiently well diversified portfolio."

MPACT Scores for Douglas Diamond

A = 1
C = 0
A+C = 1
T = 1
G = 1
W = 1
TD = 1
TA = 0
calculated 2008-05-26 16:35:38

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