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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,...
Persistent link: https://www.econbiz.de/10011118072
This article investigates the impact of credit allocation on heterogeneous wealth entrepreneurs. We show that with decreasing risk aversion and unobservable wealth, poorer borrowers exert more effort. As a consequence of endogenous adverse selection, they are either excluded from the market or...
Persistent link: https://www.econbiz.de/10010865390