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...
| Published in: | Economic Inquiry Vol. 41; no. 2; pp. 318 - 325 |
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| Main Authors: | , |
| Format: | Article |
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Wiley-Blackwell
April 2003
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| Subjects: | |
| Online Access: | View this record in EBSCOhost |
| fields | @attributes: recordID: 1 pdfLink: plink: https://search.ebscohost.com/login.aspx?direct=true&db=ssf&AN=510239269&site=ehost-live header: @attributes: shortDbName: ssf uiTerm: 510239269 longDbName: Social Sciences Full Text (H.W. Wilson) uiTag: AN controlInfo: bkinfo: jinfo: jid: 00952583 EIQ jtl: Economic Inquiry issn: 00952583 maglogo: N pubinfo: dt: April 2003 vid: 41 iid: 2 pid: 480 pub: Wiley-Blackwell artinfo: ui: 510239269 10.1093/ei/cbg011 ppf: 318 ppct: 7 formats: fmt: – @attributes: type: T – @attributes: type: P size: 682KB tig: atl: Optimality of Investment under Imperfectly Enforceable Financial Contracts. aug: au: Chu, Hsiao-Lei Chen, Nan-Kuang su: Information theory in economics Contracts Mathematical models Mathematical models of investments sug: subj: Information theory in economics Contracts Mathematical models Mathematical models of investments ab: 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. pubtype: Academic Journal doctype: Article src: R language: English refInfo: copyright: @attributes: flag: N holdings: @attributes: islocal: N |
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