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Entrepreneurial Risk Choice and Credit Market Equilibria
2010
Social Science Research Network
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We analyze under what conditions credit markets are efficient in providing loans to entrepreneurs who can start a new project after previous failure. An entrepreneur of uncertain talent chooses the riskiness of her project. If banks cannot perfectly observe the risk of previous projects, two equilibria may coexist: (1) an inefficient equilibrium in which the entrepreneur undertakes a low-risk project and has no access to finance after failure; and (2) a more efficient equilibrium in which the
doi:10.2139/ssrn.1703683
fatcat:ssor6zt34nbn5iomrusrtrtvxa