Complementarity, Coordination, and Credit

Alessandro Fedele and Andrea Mantovani

Journal of Institutional and Theoretical Economics (JITE), 2008, vol. 164, issue 2, 230-253

Abstract: We consider a start-up firm run by an owner-manager who applies for a bank loan to implement a project based on two complementary activities. Complementarity can be improved by coordinating the activities, either by the manager or by an internal employee to whom the task is delegated. In the former case coordination is not verifiable and moral hazard arises, while in the latter case the informational asymmetry is mitigated. We find parameter regions where, absent delegation, either the firm obtains no loan or the surplus, defined as the sum of bank's and manager's utility, shrinks. We also consider bank monitoring, which yields both redistributive and surplus-reducing effects.

JEL-codes: D21 D82 O32 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (4)

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Working Paper: Complementarity, Coordination and Credit (2004)
Working Paper: Complementarity, coordination, and credit (2004)
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