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Entrepreneurial Abilities and Liabilities in a Model of Self-Selection

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  • Christophe Chamley

Abstract

The role of the liability form as a signalling device is analyzed in a model of occupational choice (entrepreneurs, employees), with asymmetric information in loan markets about the abilities of entrepreneurs. The properties of the equilibrium are described. When factor prices are exogenous, the feasibility of limited liability is a Pareto improvement over a regime where there is only unlimited liability. This result does not hold when factor prices are endogenous.

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File URL: http://cowles.econ.yale.edu/P/cd/d05b/d0580.pdf
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Bibliographic Info

Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 580.

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Length: 34 pages
Date of creation: Jan 1981
Date of revision:
Publication status: Published in Bell Journal of Economics (Spring 1983), 14(1): 70-80
Handle: RePEc:cwl:cwldpp:580

Note: CFP 598.
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References

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  1. Joseph E. Stiglitz, 1973. "The Theory of 'Screening', Education, and the Distribution of Income," Cowles Foundation Discussion Papers 354, Cowles Foundation for Research in Economics, Yale University.
  2. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  3. Jaynes, Gerald David, 1978. "Equilibria in monopolistically competitive insurance markets," Journal of Economic Theory, Elsevier, vol. 19(2), pages 394-422, December.
  4. Shoven, John B, 1976. "The Incidence and Efficiency Effects of Taxes on Income from Capital," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1261-83, December.
  5. Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 719-48, August.
  6. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
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Cited by:
  1. Laurence J. Kotlikoff & Jianjun Miao, 2010. "What Does the Corporate Income Tax Tax? A Simple Model Without Capital," Boston University - Department of Economics - Working Papers Series WP2010-013, Boston University - Department of Economics.
  2. Daniela Grieco, 2008. "The entrepreneurial decision: theories, determinants and constraints," LIUC Papers in Economics 207, Cattaneo University (LIUC).
  3. Parker, Simon C, 2002. "Do Banks Ration Credit to New Enterprises? And Should Governments Intervene? President's Lecture Delivered at the Annual General Meeting of the Scottish Economic Society 4-5 September 2001," Scottish Journal of Political Economy, Scottish Economic Society, vol. 49(2), pages 162-95, May.
  4. Gravelle, Jane G & Kotlikoff, Laurence J, 1989. "The Incidence and Efficiency Costs of Corporate Taxation When Corporate and Noncorporate Firms Produce the Same Good," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 749-80, August.

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