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Information Acquisition and Government Intervention in Credit Markets

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  • Boadway, Robin
  • Sato, Motohiro

Abstract

Market failure in the financing of risky projects is studied. Project risk includes idiosyncratic and aggregate components. Banks can investigate aggregate risk and can evaluate the idiosyncratic risk of each entrepreneur. They engage in Bertrand competition for entrepreneurs using interest rates. Information obtained by a bank on aggregate risk is fully revealed, and that on entrepreneur‐specific risk is partly revealed. Banks will not investigate aggregate risk and will evaluate entrepreneurs too intensively. Efficiency can be improved by public acquisition of information on industry risk and by loan guarantees partially covering losses on projects that fail.
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Suggested Citation

  • Boadway, Robin & Sato, Motohiro, 1997. "Information Acquisition and Government Intervention in Credit Markets," Queen's Institute for Economic Research Discussion Papers 273396, Queen's University - Department of Economics.
    • Handle: RePEc:ags:queddp:273396
    DOI: 10.22004/ag.econ.273396
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    Cited by:

    1. Robin Boadway & Motohiro Sato, 2011. "Entrepreneurship and asymmetric information in input markets," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 18(2), pages 166-192, April.
    2. Jörn Hendrich Block & Thorsten Staak & Philipp Tilleßen, 2007. "Ist das staatliche Eingreifen ins Gründungsgeschehen theoretisch legitimiert?," FEMM Working Papers 07007, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    3. Robin Boadway & Jean-François Tremblay, 2003. "Public Economics and Startup Entrepreneurs," CESifo Working Paper Series 877, CESifo.
    4. Robin Boadway & Motohiro Sato & Jean-François Tremblay, 2021. "Efficiency and the taxation of bank profits," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(1), pages 191-211, February.
    5. Clemens Fuest & Bernd Huber & Philipp Tillessen, 2003. "Tax Policy and Entrepreneurship in the Presence of Asymmetric Information in Capital Markets," CESifo Working Paper Series 872, CESifo.
    6. Robin Boadway & Michael Keen, 2006. "Financing and Taxing New Firms under Asymmetric Information," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 62(4), pages 471-502, December.

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    Keywords

    Financial Economics;

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