@misc{12861,
title = {Fighting for the Best, Losing With the Rest: A Case for Restricting Credit to Business Start-Ups},
author = {Hernández, Juan and Wills, Daniel},
year = {2017},
doi = {10.18235/0000826},
abstract = {The Jumpstart Our Business Startups (JOBS) Act of 2012 aims at increasing funding access for young firms by easing securities regulation.  Motivated by this, we ask if there is a role for the regulation of the market of funds for firms that lack collateral and have a large uncertainty about their ability to generate profits.  To answer that we characterize optimal financial contracts in a competitive environment with risk, adverse selection and limited liability.  We find that competition among financial intermediaries always forces them to fund projects with negative expected returns both from a private and from a social perspective.  Intermediaries use steep payoff schedules to screen entrepreneurs, but limited liability implies this can only be done by giving more to all entrepreneurs.},
url = {https://doi.org/10.18235/0000826}
}