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 estimate the ratio of social to private marginal 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. For venture capital, the ratio is between 0.64 and 0.83 and for junk bond underwriting, it is between 0.09 and 0.26. In both cases this is less than one so at the margin financial expertise destroys surplus.