The Social Value of Financial Expertise

I study expertise acquisition in a model of trading under asymmetric information. I propose and implement a method to measure r; the ratio of the marginal social value to the marginal private value of expertise. This can be decomposed into three sufficient statistics: traders' average profits, the fraction of bad assets among traded assets and the elasticity of good assets traded with respect to capital inflows. I measure r = 0:16 for the junk bond underwriting market. Since this is less than one, it implies that marginal investments in expertise destroy surplus.