Financing and Taxing New Firms under Asymmetric Information
This paper uses a sequence of models to study the efficiency of credit-market equilibria, and the scope for welfare-improving policy interventions, when financial intermediaries cannot observe the riskiness or returns of potential investment projects by new firms. It is first shown that when only loan financing is available there is a systematic tendency towards overinvestment in high-return, high-risk projects and underinvestment in low-return, low-risk projectsrelative to the social optimum [this encompasses the well-known results of Stiglitz and Weiss (1981) and de Meza and Webb (1987) as special cases]. The ambiguity is mitigated, however, if firms have access to equity financing: there is then (under reasonable conditions) unambiguously overinvestment. Policy implications are developed, and the results extended to allow for screening and signaling equilibria.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 62 (2006)
Issue (Month): 4 (December)
|Contact details of provider:|| Web page: https://www.mohr.de/fa|
|Order Information:|| Postal: Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Boadway, Robin & Sato, Motohiro, 1999. " Information Acquisition and Government Intervention in Credit Markets," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 1(3), pages 283-308.
- Bernheim, B. Douglas, 2002.
"Taxation and saving,"
Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 18, pages 1173-1249
- B. Douglas Bernheim, 1999. "Taxation and Saving," NBER Working Papers 7061, National Bureau of Economic Research, Inc.
- B. Douglas Bernheim, 1999. "Taxation and Saving," Working Papers 99007, Stanford University, Department of Economics.
- Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-622, May. Full references (including those not matched with items on IDEAS)