Suppose an intermediary provides a benefit to buyers when they purchase from sellers using the intermediary’s technology. We develop a model to show that the intermediary would want to restrict sellers from charging buyers more for transactions it intermediates. With this restriction an intermediary can profitably raise demand for its services by eliminating any extra price buyers face for purc...

Financial intermediation naturally arises when knowing how loan payoffs are correlated is valuable for managing investments but lenders cannot easily observe that relationship. I show this result using a costly enforcement model in which lenders need ex-post incentives to enforce payments from defaulted loans and borrowers’ payoffs are correlated. When projects have correlated outcomes, learnin...

To understand the link between financial intermediation activities and the real economy, we put forward a general equilibrium model where agency frictions in the financial sector affect the efficiency of capital reallocation across firms and generate aggregate economic fluctuations. We develop a recursive policy iteration approach to fully characterize the nonlinear equilibrium dynamics and the...

Economists have devoted a great deal of attention to modeling the macroeconomic implications of cyclical variation of borrowers’ creditworthiness, yet the literature has largely neglected the task of modeling the behavior of the bank. This omission in the literature is particularly unfortunate given the strong empirical evidence in support of the role of banks’ financial structure in lending de...

This paper shows that manufacturing exporters export goods they have not produced and thus also act as trade intermediaries. The geographical dimension of the data reveals almost half these exports “sourced” products are purely intermediated: to many destinations, firms sourced only. We find this type intermediation is ubiquitous across firms, products, robust a battery alternative definitions....

The theme of the parables of the Lost Sheep and Lost Coin continue in the parable of the Lost Son, though now we have a longer, more personal story with three main characters. In this parable, the younger of two sons becomes unsettled with life on the family estate and requests his share of the inheritance, only to squander it recklessly in a foreign land. Upon his return home he is welcomed an...