Optimality of Investment under Imperfectly Enforceable Financial Contracts.
We investigate the optimality of aggregate investment and its policy implications under an environment in which financial contracts are imperfectly enforceable. We show that too much investment occurs when the ratio of own capital to debt is smaller than the ratio of project returns in terms of futu...
| Publicado en: | Economic Inquiry Vol. 41; no. 2; pp. 318 - 325 |
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| Autores principales: | , |
| Formato: | Artículo |
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Wiley-Blackwell
April 2003
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| Acceso en línea: | Ver este registro en EBSCOhost |
| Sumario: | We investigate the optimality of aggregate investment and its policy implications under an environment in which financial contracts are imperfectly enforceable. We show that too much investment occurs when the ratio of own capital to debt is smaller than the ratio of project returns in terms of future values across periods, and too low investment occurs otherwise. A subsidy (tax) on the risk-free interest income can close the over- (under-) investment gap, but this policy may not be welfare improving. Reprinted by permission of the publisher. |
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