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on Project, Program and Portfolio Management |
| By: | Philippon, Thomas; Schnabl, Philipp |
| Abstract: | We analyze public interventions to alleviate debt overhang among private firms when the government has limited information and limited resources. We compare the efficiency of buying equity, purchasing existing assets, and providing debt guarantees. With symmetric information, all the interventions are equivalent. With asymmetric information between firms and the government, buying equity dominates the two other interventions. We solve for the optimal intervention, and show how it can be implemented with subordinated loans and warrants. |
| Keywords: | bailout; capital; financial crisis; moral hazard |
| JEL: | G3 G34 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:7516&r=ppm |
| By: | Vittoria Cerasi (Department of Statistics, Università degli Studi di Milano-Bicocca); Lucia Dalla Pellegrina (Department of Statistics, Università degli Studi di Milano-Bicocca) |
| Abstract: | In this paper we analyse the role of peers' solidarity in fostering investment in production in the context of micro?nance. When there is asymmetric information between lenders and borrowers on the use of borrowed funds and loans are not collateralized, there is a high chance that borrowers use loans for current consumption sacrifying productive projects. We study the effect of solidarity in the form of insurance from a network of relatives on borrowers' intertemporal preference for consumption and its impact on myopic behavior. The main result of the model is that solidarity might increase the share of funds devoted to investment but it might also reduce the amount of the loan in equilibrium. This result is in accordance with several features of micro-lending. We test the model using survey data from the World Bank on a sample of households in Bangladesh during the period 1991-1992. Empirical fi?ndings support the predictions of the model. |
| Keywords: | Microfinance, credit rationing, social networks |
| JEL: | O16 O17 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:mis:wpaper:20091101&r=ppm |