The Governance of Perpetual Financial Intermediaries

Jos van Bommel, Penalva, Jose

Research output: Contribution to journalArticleScientificpeer-review

Abstract

We reexamine the risk-sharing potential of intergenerational financial intermediaries, taking into account their governance structure. We argue that asset buffers of perpetual institutions are limited by the temptation of the living stakeholders to renegotiate contributions and distributions. We characterize the renegotiation constraint and show that it severely limits intergenerational risk sharing. Without renegotiation frictions, intermediaries cannot provide higher welfare than a market. The existence of (self-imposed) renegotiation costs relaxes the constraint. By forming a single monopolist intermediary, agents can further improve welfare. (JEL: G21, D91)
Original languageEnglish
Pages (from-to)498-522
JournalJOURNAL OF INSTITUTIONAL AND THEORETICAL ECONOMICS-ZEITSCHRIFT FUR DIE GESAMTE STAATSWISSENSCHAFT
Volume173
Issue number3
DOIs
Publication statusPublished - 2017
MoE publication typeA1 Journal article-refereed

Keywords

  • Financial Intermediation
  • Overlapping Generations
  • Pension Plans

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