Information Acquisition and Government Intervention in Credit Markets
AbstractMarket failure in the financing of risky projects is studied. Project risk includes idiosyncratic and aggregate components. Banks can investigate aggregate risk and can evaluate the idiosyncratic risk of each entrepreneur. They engage in Bertrand competition for entrepreneurs using interest rates. Information obtained by a bank on aggregate risk is fully revealed, and that on entrepreneur-specific risk is partly revealed. Banks will not investigate aggregate risk and will evaluate entrepreneurs too intensively. Efficiency can be improved by public acquisition of information on industry risk and by loan guarantees partially covering losses on projects that fail. Copyright 1999 by Blackwell Publishing Inc.
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Bibliographic InfoArticle provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.
Volume (Year): 1 (1999)
Issue (Month): 3 ()
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=1097-3923
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- Robin Boadway & Motohiro Sato, 2006.
"Entrepreneurship and Asymmetric Information in Input Markets,"
1069, Queen's University, Department of Economics.
- Robin Boadway & Motohiro Sato, 2011. "Entrepreneurship and asymmetric information in input markets," International Tax and Public Finance, Springer, vol. 18(2), pages 166-192, April.
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