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 necessarily subsidize richer borrowers in a pooling equilibrium resulting in a paradoxical and inequitable redistribution. Alternatively, a less likely separating equilibrium may occur, in which poor types bear the entire weight of separation in the form of excess risk taking.

Unfair credit allocations / G. Coco; G. Pignataro. - In: SMALL BUSINESS ECONOMICS. - ISSN 0921-898X. - ELETTRONICO. - 41:(2013), pp. 241-251. [10.1007/s11187-012-9422-3]

Unfair credit allocations

COCO, GIUSEPPE;
2013

Abstract

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 necessarily subsidize richer borrowers in a pooling equilibrium resulting in a paradoxical and inequitable redistribution. Alternatively, a less likely separating equilibrium may occur, in which poor types bear the entire weight of separation in the form of excess risk taking.
2013
41
241
251
G. Coco; G. Pignataro
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Utilizza questo identificatore per citare o creare un link a questa risorsa: https://hdl.handle.net/2158/609922
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