Interest Rates and Investment Under Competitive Screening and Moral Hazard

Anastasios Dosis

Working Papers from HAL

Abstract: This paper studies the effect of (market) interest rate changes on investment under competitive screening and moral hazard. Lower (higher) rates ease (hinder) the provision of incentives to entrepreneurs with positive NPV projects to invest in their best project but hinder (ease) banks' efforts to distinguish them from entrepreneurs with negative NPV projects. This might result in a hump-shaped investment curve. Under low rates, screening through limit pricing leaves insufficient profits to low-wealth entrepreneurs to invest in their best project, and consequently, several project qualities might co-exist in equilibrium. Several testable and other implications on the effectiveness of unconventional monetary policy to boost investment are discussed.

Keywords: Interest rates; entrepreneurial wealth; investment; competitive screening; moral hazard (search for similar items in EconPapers)
Date: 2019-02-16
New Economics Papers: this item is included in nep-ban and nep-ppm
Note: View the original document on HAL open archive server: https://essec.hal.science/hal-02130434
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://essec.hal.science/hal-02130434/document (application/pdf)

Related works:
Working Paper: Interest Rates and Investment Under Competitive Screening and Moral Hazard (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-02130434

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().