Asymmetric Information, Auditing Commitment, and Economic Growth

Wai-Hong Ho () and Yong Wang ()

Canadian Journal of Economics, 2013, vol. 46, issue 2, 611-633

Abstract: We analyze in this paper the growth and welfare consequences stemming from the lack of auditing commitment in a credit market with costly state verification. By studying two endogenous growth models, one of which allows lenders to commit to costly auditing strategies, whereas the other does not, we show that the inability to commit serves as a source of informational friction that results in more stringent contractual terms, which, in turn, result in lower capital accumulation, growth, and welfare. From the policy perspective, our analysis suggests a new microeconomic channel through which institutional failings hinder economic growth and social welfare.

JEL-codes: D82 O41 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (2)

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Working Paper: Asymmetric Information, Auditing Commitment and Economic Growth (2008)
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