Information Constraints Under Financial Supervision

In this paper, the author discusses about financial supervision in the framework of information economics. It concludes that overcoming information constraints on financial market is essential and crucial to financial supervision, because, in the principal-agent model, information constraints and costs on financial market have given birth to financial media which in their operation have inevitably brought new information constraints to create financial risks.Based on this, the author further analyzes the status quo of financial supervision in China and is of the opinion that the inadequate information ability of governmental supervision has led to the equilibrium between inefficient financial supervision and inefficient finance. To change the situation, the author suggests that efficient supervision is only possible when the existing supervision model is corrected and a market-information integration supervision model based on governmental supervision and supplemented by institutional control, peer discipline and market constraints is reconstructed by dissolving information constraints and establishing effective incentives.