Dysfunctional Finance : Positive Shocks and Negative Outcomes

n financial markets with asymmetric information about mean returns, borrowers with different default risks may pay the same rate of interest. If they do, the marginal borrower will have a high-risk, negative-value project. Under some conditions, technological change that increases each entrepreneur&...

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Bibliographic Details
Main Author:	Hoff, Karla
Format:	Journal Article
Language:	EN
Published:	2012
Subjects:	Asymmetric and Private Information D820 Banks Other Depository Institutions Micro Finance Institutions Mortgages G210 Financing Policy Financial Risk and Risk Management Capital and Ownership Structure G320 Entrepreneurship L260
Online Access:	http://hdl.handle.net/10986/5848

id	okr-10986-5848
recordtype	oai_dc
spelling	okr-10986-58482021-04-23T14:02:23Z Dysfunctional Finance : Positive Shocks and Negative Outcomes Hoff, Karla Asymmetric and Private Information D820 Banks Other Depository Institutions Micro Finance Institutions Mortgages G210 Financing Policy Financial Risk and Risk Management Capital and Ownership Structure G320 Entrepreneurship L260 n financial markets with asymmetric information about mean returns, borrowers with different default risks may pay the same rate of interest. If they do, the marginal borrower will have a high-risk, negative-value project. Under some conditions, technological change that increases each entrepreneur's output will attract a new set of negative-value projects. This adverse selection process will erode the ability rents of the inframarginal borrowers. I present an example in which it destroys the market. The results imply that a boom in a sector can lead to a crisis if institutional change to solve the screening problem does not occur. 2012-03-30T07:34:50Z 2012-03-30T07:34:50Z 2010 Journal Article Journal of Globalization and Development 19481837 http://hdl.handle.net/10986/5848 EN http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank Journal Article
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	EN
topic	Asymmetric and Private Information D820 Banks Other Depository Institutions Micro Finance Institutions Mortgages G210 Financing Policy Financial Risk and Risk Management Capital and Ownership Structure G320 Entrepreneurship L260
spellingShingle	Asymmetric and Private Information D820 Banks Other Depository Institutions Micro Finance Institutions Mortgages G210 Financing Policy Financial Risk and Risk Management Capital and Ownership Structure G320 Entrepreneurship L260 Hoff, Karla Dysfunctional Finance : Positive Shocks and Negative Outcomes
relation	http://creativecommons.org/licenses/by-nc-nd/3.0/igo
description	n financial markets with asymmetric information about mean returns, borrowers with different default risks may pay the same rate of interest. If they do, the marginal borrower will have a high-risk, negative-value project. Under some conditions, technological change that increases each entrepreneur's output will attract a new set of negative-value projects. This adverse selection process will erode the ability rents of the inframarginal borrowers. I present an example in which it destroys the market. The results imply that a boom in a sector can lead to a crisis if institutional change to solve the screening problem does not occur.
format	Journal Article
author	Hoff, Karla
author_facet	Hoff, Karla
author_sort	Hoff, Karla
title	Dysfunctional Finance : Positive Shocks and Negative Outcomes
title_short	Dysfunctional Finance : Positive Shocks and Negative Outcomes
title_full	Dysfunctional Finance : Positive Shocks and Negative Outcomes
title_fullStr	Dysfunctional Finance : Positive Shocks and Negative Outcomes
title_full_unstemmed	Dysfunctional Finance : Positive Shocks and Negative Outcomes
title_sort	dysfunctional finance : positive shocks and negative outcomes
publishDate	2012
url	http://hdl.handle.net/10986/5848
_version_	1764396529024499712

Dysfunctional Finance : Positive Shocks and Negative Outcomes

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