The Social Value of Financial Expertise The Social Value of Financial Expertise
نویسنده
چکیده
I study expertise acquisition in a model of trading under asymmetric information. I propose and implement a method to measure r, the ratio of the marginal social value to the marginal private value of expertise. This can be decomposed into three sufficient statistics: traders’ average profits, the fraction of bad assets among traded assets and the elasticity of good assets traded with respect to capital inflows. I measure r = 0.16 for the junk bond underwriting market. Since this is less than one, it implies that marginal investments in expertise destroy surplus.
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I study a model of trading under asymmetric information where traders can acquire expertise to become better informed. Within the context of this model, I propose and implement a method to estimate the ratio of the marginal social value to the marginal private value of expertise. More expert traders get rents because they can choose which assets to trade and they add social value because by cha...
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