Document Type

Article

Publication Date

2001

Center/Program

Center for Contract and Economic Organization

Center/Program

The Charles Evans Gerber Transactional Studies Center

Abstract

This Essay investigates the effect of advances in information technology on the private institutions that businesses use to resolve information asymmetries in financing transactions. The first part of the Essay discusses how information technology can permit direct verification of the information, obviating the problem entirely; the Essay 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.

The second part of the Essay discusses how advances in information technology can solve information problems indirectly: leaving the problem in place to some degree but mitigating its severity. The Essay uses three examples. First, it discusses how advances in information technology improve the functioning of reputational verification systems, with a special emphasis on the dis-intermediation of securities issuance. Second, the Essay discusses the rise of intermediation by pooling in the area of securitization. The Essay closes by discussing how information technology has facilitated the rise of the information merchant, which can sell information directly to those who need it for their transactions.

Comments

Permission to reprint has been granted by the Vanderbilt Law Review.

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