Moral Hazard and Information Sharing: A Model of Financial Information Gathering Agencies




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    • Assistant Professor of Finance at Boston College and Associate Professor of Finance at the Indiana University School of Business, respectively. Revisions of this paper were made while Thakor was Visiting Associate Professor of Finance at the J. L. Kellogg Graduate School of Management, Northwestern University. The comments of anonymous referees, and particularly the suggestions of an Associate Editor, have been very helpful in improving this paper. Responsibility for errors or infelicitous remarks, if any, rests solely with the authors.


We propose a theory of information gathering agencies in a world of informational asymmetries and moral hazard. In a setting in which true firm values are certified by screening agents whose payoffs depend on noisy ex post monitors of information quality, the formation of information gathering agencies (groups of screening agents) is justified on two grounds. First, it enables screening agents to diversify their risky payoffs. Second, it allows information sharing. The first effect itself is insufficient despite the risk aversion of screening agents and the stochastic independence of the monitors used to compensate them.