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-investment 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. The results are extended to allow for signaling and screening equilibria.
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- 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.
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"Nonlinear pricing in a finite economy,"
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Elsevier, vol. 17(2), pages 157-179, March.
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"The Allocation of Credit and Financial Collapse,"
NBER Working Papers
1786, National Bureau of Economic Research, Inc.
- 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.
- 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.
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