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Financing Development: The Role of Information Costs

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  • Jeremy Greenwood

    (University of Pennsylvania)

Abstract

particular, financial intermediaries can invest resources to monitor the returns earned by firms. The inability to monitor perfectly leads to firms earning rents. Undeserving firms are financed, while deserving ones are under funded. A more efficient monitoring technology squeezes the rents earned by firms. With technological advance in the financial sector, the economy moves continuously from a credit-rationing equilibrium to a perfectly efficient competitive equilibrium. A numerical example suggests that finance is important for growth.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2007 Meeting Papers with number 171.

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Date of creation: 2007
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Handle: RePEc:red:sed007:171

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References

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  1. Development economics needs to refocus on theory
    by Economic Logician in Economic Logic on 2009-04-10 13:35:00
  2. El spread en el sistema bancario y la delegación de tareas en la actividad productiva
    by Humberto M. Ennis in Foco Económico on 2011-08-31 12:00:00
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