Complementarity, Coordination, and Credit
AbstractWe 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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Bibliographic InfoArticle provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.
Volume (Year): 164 (2008)
Issue (Month): 2 (June)
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Other versions of this item:
- FEDELE, Alessandro & MANTOVANI, Andrea, 2004. "Complementarity, coordination, and credit," CORE Discussion Papers 2004017, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- A. Fedele & A. Mantovani, 2004. "Complementarity, Coordination and Credit," Working Papers 502, Dipartimento Scienze Economiche, Universita' di Bologna.
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- O32 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Management of Technological Innovation and R&D
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