IDEAS home Printed from https://ideas.repec.org/p/zbw/bofrdp/rdp2002_005.html
   My bibliography  Save this paper

Financial institutions and the allocation of talent

Author

Listed:
  • Kanniainen, Vesa
  • Leppämäki, Mikko

Abstract

The paper shows that uninformed finance gives rise to excessive entry, both in human-capital-intensive and in conventional industries when the financial institutions cannot identify the entrepreneurial talent.Introduction of informed capital (eg venture capital finance) with superior screening ability results in an institutional equilibrium with efficiency gains in human-capital industries.Contrary to received wisdom, the institutional equilibrium with informed capital is characterised by more limited entry to an industry, which requires highly talented human capital. Unexpectedly, the total welfare effect is ambiguous, as the allocation of non-informed capital is now less efficient in the conventional industry.The institutional equilibrium is shaped by investors' risk preferences, costs of establishing uninformed and informed capital, and the initial distribution ot talent in the economy.

Suggested Citation

  • Kanniainen, Vesa & Leppämäki, Mikko, 2002. "Financial institutions and the allocation of talent," Bank of Finland Research Discussion Papers 5/2002, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:rdp2002_005
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/211909/1/bof-rdp2002-005.pdf
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    allocation of talent; asymmetric information; financial institutions; venture capital; institutional equilibrium;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:bofrdp:rdp2002_005. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/bofgvfi.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.