The Wharton School Of Business - Innovation In Financial Services, Relationships And Risk Sharing.pdf

FinancialInstitutionsCenterInnovations in Financial Services,Relationships and Risk SharingbyFranklin AllenDouglas Gale97-26-BTHE WHARTON FINANCIAL INSTITUTIONS CENTERThe Wharton Financial Institutions Center provides a multi-disciplinary research approach tothe problems and opportunities facing the financial services industry in its search petitive excellence. The Center's research focuses on the issues related to managing riskat the firm level as well as ways to improve productivity and Center fosters the development of munity of faculty, visiting scholars and whose research plement and support the mission of the Center. TheCenter works closely with industry executives and practitioners to ensure that its research isinformed by the operating realities petitive demands facing industry participants asthey petitive of the working papers summarized here are available from the Center. If you wouldlike to learn more about the Center or e a member of our munity, pleaselet us know of your M. SantomeroDirectorThe Working Paper Series is made possible by a generousgrant from the Alfred P. Sloan FoundationFranklin Allen is at the Wharton School, University of Pennsylvania, Philadelphia, PA 19104. Douglas1Gale is at the Economics Department, New York University, New York, NY thank Tony Santomero, Charles Kahn and other participants at the Wharton Financial Institutions Conferenceon Performance of Financial Institutions in May 1997 and particularly an anonymous referee for support from the National Science Foundation and the Wharton Financial Institutions Center isgratefully in Financial Services, Relationships and Risk Sharing 1April 15, 1998Abstract: Relationships between intermediaries and their customers have e increasinglyimportant in recent years. This paper argues that the need for costly ex ante informationacquisitionand analysis is a major barrier