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| dc.title | Fighting for the Best, Losing With the Rest: A Case for Restricting Credit to Business Start-Ups |
| dc.contributor.author | Hernández, Juan |
| dc.contributor.author | Wills, Daniel |
| dc.contributor.orgunit | Department of Research and Chief Economist |
| dc.date.available | 2017-09-20T00:00:00 |
| dc.date.issue | 2017-09-19T00:00:00 |
| dc.description.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. |
| dc.identifier.doi | http://dx.doi.org/10.18235/0000826 |
| dc.identifier.url | https://publications.iadb.org/publications/english/document/Fighting-for-the-Best-Losing-With-the-Rest-A-Case-for-Restricting-Credit-to-Business-Start-Ups.pdf |
| dc.language.iso | en |
| dc.medium | Adobe PDF |
| dc.publisher | Inter-American Development Bank |
| dc.subject | Macroeconomy |
| dc.subject.jelcode | D82 - Asymmetric and Private Information • Mechanism Design |
| dc.subject.jelcode | G14 - Information and Market Efficiency • Event Studies • Insider Trading |
| dc.subject.jelcode | G28 - Government Policy and Regulation |
| dc.type | Discussion Papers |
| idb.identifier.pubnumber | Discussion Papers |