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Cover von: The Governance of Perpetual Financial Intermediaries
José Penalva, Jos van Bommel

The Governance of Perpetual Financial Intermediaries

Rubrik: Articles
Jahrgang 173 (2017) / Heft 3, S. 498-522 (25)
Publiziert 09.07.2018
DOI 10.1628/093245616X14798149327649
Veröffentlicht auf Englisch.
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We reexamine the risk-sharing potential of intergenerational financial intermediaries, taking into account their governance structure. We argue that asset buffers of perpetual institutions are limited by the temptation of the living stakeholders to renegotiate contributions and distributions. We characterize the renegotiation constraint and show that it severely limits intergenerational risk sharing. Without renegotiation frictions, intermediaries cannot provide higher welfare than a market. The existence of (self-imposed) renegotiation costs relaxes the constraint. By forming a single monopolist intermediary, agents can further improve welfare. (JEL: G21, D91)