Autori
Di Pietro, Christian
Sorge, Marco Maria

Titolo
Outside (option) in the orchard: lemons or peaches?
Periodico
Economia e politica industriale
Anno: 2018 - Volume: 45 - Fascicolo: 4 - Pagina iniziale: 555 - Pagina finale: 564

We study how an employment-related outside option affects equilibrium properties of credit markets plagued with asymmetric information, when returns to entrepreneurial ventures are ranked by first-order stochastic dominance. While greater separation of expected payoffs in paid employment than in entrepreneurship may involve credit rationing or market breakdown, a lemons problem in the outside option may produce multiple competitive equilibria, each featuring favorable selection in the credit market. Under these circumstances, informational asymmetries will not prevent high-ability individuals from pursuing entrepreneurship and yet induce more investment than is socially efficient. This prediction is consistent with recent empirical evidence on the relative importance of rationing vis-à-vis over-provision for credit seeking, informationally opaque firms.



SICI: 0391-2078(2018)45:4<555:O(ITOL>2.0.ZU;2-J

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