Information Technology and the Increasing Efficacy of Non-Legal Sanctions in Financing Transactions

Ronald J. Mann, Columbia Law School


This paper investigates the effect of advances in information technology on the private institutions that businesses use to resolve information asymmetries in financing transactions. It discusses four separate effects. First, in some cases information technology will permit direct verification of the information, obviating the problem entirely; the paper discusses the example of the substitution of the debit card for the check, which provides an immediate payment that obviates the need for the merchant to consider whether payment will be forthcoming when the check is presented to the bank on which it is drawn. Second, the paper discusses how advances in information technology improve the functioning of reputational verification systems, with a special emphasis on the dis-intermediation of securities issuance. Third, the paper discusses the rise of intermediation by pooling in the area of securitization. The paper closes by discussing the information merchant, which can sell information directly to those who need it for their transactions.