PROPRIETARY INFORMATION, FINANCIAL INTERMEDIATION, AND RESEARCH INCENTIVES

We contrast equilibria in loan markets with bilateral bank-borrower ti es, in which proprietary technological knowledge of borrowers is not r evealed to product market competitors, with equilibria under multilate ral financing in which such knowledge may be shared among competing bo rrowing firms. Using each of these two institutional arrangements, we examine the conditions for existence of equilibrium, its ex ante optim ality, and borrowing firms' incentives to engage in private costly res earch. Also explored is the potential for lending banks to coordinate postinvention collusion in product markets by multiple inventing firms . Journal of Economic Literature Classification Numbers: 310, 3121 314 . (C) 1995 Academic Press, lnc.