Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/83379
Authors: 
Janda, Karel
Year of Publication: 
2008
Series/Report no.: 
IES Working Paper 12/2008
Abstract: 
Credit contracting between a lender with a market power and a small start-up entrepreneur may lead to a rejection of projects whose expected benefits are higher than their total costs when an adverse selection is present. This inefficiency may be eliminated by a government support in the form of credit guarantees or subsidies. The principal-agent model of this paper compares different forms of government support and concludes that a guarantee defined as a proportion of a gross interest rate is not a sufficiently robust policy instrument. Lump-sum guarantees and interest rate subsidies are evaluated as better instruments because they have a nonambiguous positive effect on a social efficiency since they enable funding of socially efficient projects which would not be financed otherwise.
Subjects: 
information asymmetry
credit
guarantees
subsidies
JEL: 
D82
G18
H25
Document Type: 
Working Paper
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