Adverse Selection of Investment Projects and the Business Cycle

Working Papers from Banca Italia - Servizio di Studi

Abstract: In an economy where entrepreneurs with unequal "abilities" face alternative investment projects, which differ in degree of risk and productivity, we analyse the Nash equilibrium contracts arising from a banks-borrowers game in the context of asymmetric information. We show that, for a particular characterization of the game, one can determine the endogenous distribution of projects and the "type" of contracts (pooling or separating) as functions of the amount of loanable funds.

Keywords: ADVERSE SELECTION; BUSINESS CYCLES; INVESTMENT PROJECTS (search for similar items in EconPapers)
JEL-codes: C70 D82 E32 E22 (search for similar items in EconPapers)
Date: Written 1998

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Working Paper: Adverse Selection of Investment Projects and the Business Cycle (1997)
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