Although it is generally accepted that the presence of imperfect in-formation in credit markets distorts the allocation of investment capital in the economy, no agreement has yet been reached in favour of government intervention in such markets to foster economic develop-ment. This work uses microeconomic foundations to develop a theoretical framework to illustrate a channel through which adverse selection in credit markets can affect economic growth. Does the lack of collateral can alter the incentives of credit-constrained entrepreneurs to make effort to innovate and to improve their...
Although it is generally accepted that the presence of imperfect in-formation in credit markets distorts the allocation of investment capital in the e...