Brokerage Commissions and Information Allocation.

This paper studies contracts between brokers and investors when investors are heterogeneous and their types are non-contractible. We identify two novel features of the commission contract (in addition to the risk-sharing argument suggested in Brennan and Chordia 1993) wich help explain its popularity: first commission extracts quasi-rents due to investors' unwillingness to incure additional cost of splitting the transaction. Second, by using a commission schedule brokers auction the early access to information among clients.