When two or more information producers coalesce by forming a financial intermediary to cooperatively generate information about particular firms,
A)there is a diversification effect which serves to reduce the risk of individual information producers
B)there is an increase in the expected cost of information production since the firm that hires the information producers have to pay more
C)the individual information producers can increase their expected utility and to the extent that the benefits of this increased utility is shared with the firm, there is a reduction in the expected cost of information production
D)both a and b
E)both a and c

Question

Quizplus · Accepted Answer

When multiple information producers coalesce to generate information about particular firms, there is a diversification effect that reduces the risk of individual information producers (option A). Additionally, by working together, individual information producers can increase their expected utility (option C), which can serve to reduce the expected cost of information production for the firm. Therefore, both options A and C are correct. Option B is incorrect as it suggests an increase in the cost of information production, which is not necessarily the case when financial intermediaries are formed.

When Two or More Information Producers Coalesce by Forming a Financial