Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/189304
Authors: 
Boadway, Robin
Keen, Michael
Year of Publication: 
2004
Series/Report no.: 
Queen's Economics Department Working Paper No. 1017
Abstract: 
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.
Subjects: 
Credit Markets
Asymmetric Information
JEL: 
G14
G18
Document Type: 
Working Paper

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