Financing New Investments under Asymmetric Information: a General Approach
We study the efficiency of credit market equilibria when financial intermediaries cannot observe the riskiness or the returns of potential investment projects. With loan financing, there is over-instrument in high-return, high-risk projects and under-investment in low-return, low-risk projects relative to the social optimum. If firms have the choice of equity finance, there is unambiguously over-investment under reasonable conditions. The well-known cases of Stiglitz and Weiss and of de Meza and Webb emerge as special cases. Policy implications are considered, and the results are extended to allow for signaling and screening equilibria.
|Date of creation:||2004|
|Contact details of provider:|| Postal: CP 8888, succursale Centre-Ville, Montréal, QC H3C 3P8|
Phone: (514) 987-8161
Web page: http://www.cirpee.org/
More information through EDIRC
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.:
- 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 Group Munich.
- Guesnerie, Roger & Seade, Jesus, 1982.
"Nonlinear pricing in a finite economy,"
Journal of Public Economics,
Elsevier, vol. 17(2), pages 157-179, March.
- Guesnerie Roger & Seade Jesus, 1981. "Nonlinear pricing in a finite economy," CEPREMAP Working Papers (Couverture Orange) 8118, CEPREMAP.
- N. Gregory Mankiw, 1986. "The Allocation of Credit and Financial Collapse," The Quarterly Journal of Economics, Oxford University Press, vol. 101(3), pages 455-470.
- N. Gregory Mankiw, 1986. "The Allocation of Credit and Financial Collapse," NBER Working Papers 1786, National Bureau of Economic Research, Inc.
- Robin Boadway & Nicolas Marceau & Maurice Marchand & Marianne Vigneault, 1998. "Entrepreneurship, Asymmetric Information, and Unemployment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 5(3), pages 307-327, July.
- Robin Boadway & Nicolas Marceau & Maurice Marchand & Marianne Vigneault, 1998. "Entrepreneurship, Asymmetric Information and Unemployment," Cahiers de recherche CREFE / CREFE Working Papers 57, CREFE, Université du Québec à Montréal.
- 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.
- Hellmann, Thomas & Stiglitz, Joseph, 2000. "Credit and equity rationing in markets with adverse selection," European Economic Review, Elsevier, vol. 44(2), pages 281-304, February. Full references (including those not matched with items on IDEAS)