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The behavior of private entrepreneurs in an imperfect financial market

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  • Tao Gu

    (Daito Bunka University)

Abstract

In this paper, we investigate the behavior of private entrepreneurs when an instrument that mitigates financing constraints is introduced in an imperfect financial market. If entrepreneurs face limitations on renting capital, it is optimal to accept the relaxation of financing constraints to overcome this obstacle to growth. However, acceptance involves a reduction in the efficiency of production. In this simulation exercise, we show that private entrepreneurs are likely to accept the relaxation of financing constraints to enable rapid growth in the early stages of the reform; however, they will reject it when the deterioration in production dominates the benefit from capital financing.

Suggested Citation

  • Tao Gu, 2020. "The behavior of private entrepreneurs in an imperfect financial market," Economics Bulletin, AccessEcon, vol. 40(1), pages 349-358.
    • Handle: RePEc:ebl:ecbull:eb-19-00419
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    References listed on IDEAS

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    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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