Inequality of credit opportunities
AbstractThis paper investigates the impact of credit allocation on heterogeneous wealth entrepreneurs from an egalitarian opportunity point of view. We show that in a model with hidden information about both entrepreneurial wealth and e¤ort aversion, and moral hazard, collateral proves ineffective in sorting good entrepreneurs from bad ones. Due to DARA, poor entrepreneurs, other things equal realize better projects. This notwithstanding, they may be rationed out or obtain a loan only at the cost of cross subsidizing bad projects realized by rich entrepreneurs.
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Bibliographic InfoPaper provided by Dipartimento Scienze Economiche, Universita' di Bologna in its series Working Papers with number wp851.
Date of creation: Oct 2012
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Find related papers by JEL classification:
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-11-11 (All new papers)
- NEP-CTA-2012-11-11 (Contract Theory & Applications)
- NEP-ENT-2012-11-11 (Entrepreneurship)
- NEP-PPM-2012-11-11 (Project, Program & Portfolio Management)
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