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Signalling, Productivity, and Investment

Author

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  • Anastasios Dosis

Abstract

This paper studies the effect of inter-entrepreneurial productivity variation on investment under asymmetric information and signalling in the credit market. When productivity is not sufficiently dispersed, safe-type entrepreneurs face borrowing constraints and might under- or overinvest relative to the social optimum. Reversals in the order of productivities cause large fluctuations in investment and output. Better economic conditions, expansionary monetary policy, and decreasesin default probabilities do not always boost investment and welfare. When the model is extended to allow for endogenous occupational choice, would-be safe-type entrepreneurs might inefficiently select to become workers.

Suggested Citation

  • Anastasios Dosis, 2019. "Signalling, Productivity, and Investment," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 175(3), pages 459-501.
  • Handle: RePEc:mhr:jinste:urn:doi:10.1628/jite-2019-0028
    DOI: 10.1628/jite-2019-0028
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    Cited by:

    1. Anastasios Dosis, 2019. "Optimal Redistributive Taxation in Credit Markets with Adverse Selection," Working Papers hal-02130458, HAL.

    More about this item

    Keywords

    credit market; adverse selection; signalling; productivity dispersion; investment; occupational choice; inefficiencies;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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