Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5088872 | Journal of Banking & Finance | 2014 | 11 Pages |
Abstract
This paper investigates the role of unobservable wealth differences on credit market equilibrium, given there is also asymmetric information concerning effort preferences and choices. In equilibrium, poor but able entrepreneurs may subsidise the rich and incompetent or be excluded. As a result, investment may exceed or fall short of the optimal level. Low inequality may deliver conditions for perfect screening and an efficient level of investment. The equilibrium with cross subsidisation is consistent with otherwise puzzling empirical observations.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Giuseppe Coco, Giuseppe Pignataro,