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.
The poor are twice cursed: Wealth inequality and inefficient credit market / Giuseppe Coco; Giuseppe Pignataro. - In: JOURNAL OF BANKING & FINANCE. - ISSN 0378-4266. - ELETTRONICO. - 49:(2014), pp. 149-159. [10.1016/j.jbankfin.2014.09.002]
The poor are twice cursed: Wealth inequality and inefficient credit market
PIGNATARO, GIUSEPPE
2014
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.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
