Innovations in financial services, relationships, and risk sharing

Franklin Allen, Douglas Gale

    Research output: Contribution to journalArticlepeer-review


    Relationships between intermediaries and their customers have become increasingly important in recent years. This paper argues that the need for costly ex ante information acquisition and analysis is a major barrier to the participation of investors and firms in sophisticated markets. Long-term relationships between intermediaries and their customers, in which intermediaries provide implicit insurance to customers, can be an effective substitute for costly ex ante investigation. In this way, intermediaries allow firms and investors to reap the benefits of financial markets. Relationships are easiest to sustain when the ongoing benefits to both parties are high. As a result, competition may lower the benefits that can be obtained from relationships.

    Original languageEnglish (US)
    Pages (from-to)1239-1253
    Number of pages15
    JournalManagement Science
    Issue number9
    StatePublished - Sep 1999

    ASJC Scopus subject areas

    • Strategy and Management
    • Management Science and Operations Research


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