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Title:
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Leverage bounds with default and asymmetric information
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Author:
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Bohácek, Radim
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Abstract:
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This paper analyzes productivity and welfare losses from capital misallocation in a general equilibrium model of occupational choice and financial intermediation. It studies the effects of risk sharing with default and imperfect monitoring on the optimal allocation of resources and derives endogenous leverage bounds. Information frictions have large impact on entrepreneurs' entry and firm-size decisions due to endogenous collateral requirements derived from incentive compatible allocations. Leverage bounds derived from default and asymmetric information constraints are then used to simulate the tradeoff from a macroprudential policy aimed at mitigating the effects of unanticipated changes in information regime. |
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Abstract:
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The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396. |
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Subject(s):
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-Financial markets and the macroeconomy
-Asymmetric and private information
-Occupational choice |
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Rights:
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This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
https://creativecommons.org/licenses/by/4.0/
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Document type:
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Working Paper |
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