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Author: | Dewatripont, M. Maskin, E. |
Title: | Credit and efficiency in centralized and decentralized economies |
Journal: | Review of Economic Studies
1995 : OCT, VOL. 62(4):213, p. 541-556 |
Index terms: | CREDIT EFFICIENCY ECONOMICS |
Language: | eng |
Abstract: | The authors study a credit model where, because of adverse selection, unprofitable projects may nevertheless be financed. Indeed they may continue to be financed even when shown to be low-quality if sunk costs have already been incurred. They show that credit decentralization offers a way for creditors to commit not to refinance such projects, thereby discouraging entrepreneurs from undertaking them initially. Thus, decentralization provides financial discipline. Nevertheless, the authors argue that it puts too high a premium on short-term returns. |
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