Diversification through a financial intermediary has the benefit of transforming loans that need costly monitoring into bank deposits that do not. We show that financial intermediation in a costly state verification model has a cost not yet analyzed: it allows for the existence of multiple...

This paper considers the problem faced by two regulators in providing incentives to a common (privately informed) regulated firm under various degrees of coordination. In the model, the firm exerts effort toward cost reduction and self-dealing, and incentives can be input-based (monitoring) and...

This paper shows that, in comparison to a single-regulator arrangement, when an agent reports to two regulators, he is confronted with more powerful ex-post incentives. This generates, from an ex-ante perspective, higher incentives for relationship-specific investment.