We consider a start-up firm run by an owner-manager who applies for a bank loan to implement a project based on two complementary activities. Complementarity can be improved by coordinating the activities, either by the manager or by an internal employee to whom the task is delegated. In the former case coordination is not verifiable and moral hazard arises, while in the latter case the informational asymmetry is mitigated. We find parameter regions where, absent delegation, either the firm obtains no loan or the surplus, defined as the sum of bank's and manager's utility, shrinks. We also consider bank monitoring, which yields both redistributive and surplus-reducing effects.
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Volume (Year): 164 (2008) Issue (Month): 2 (June) Pages: 230-253 Download reference. The following formats are available: HTML
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Find related papers by JEL classification: D21 - Microeconomics - - Production and Organizations - - - Firm Behavior D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information O32 - Economic Development, Technological Change, and Growth - - Technological Change - - - Management of Technological Innovation and R&D
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