Financing Experimentation

Rocco Macchiavello

No 270434, Economic Research Papers from University of Warwick - Department of Economics

Abstract: Entrepreneurs must experiment to learn how good they are at a new activity. What happens when the experimentation is Önanced by a lender? Under common scenarios, i.e., when there is the opportunity to learn by "starting small" or when "no-compete" clauses cannot be enforced ex-post, we show that Önancing experimentation can become harder precisely when it is more proÖtable, i.e., for lower values of the known-arm and for more optimistic priors. Endogenous collateral requirements (like those frequently observed in micro-credit schemes) are shown to be part of the optimal contract.

Keywords: Financial; Economics (search for similar items in EconPapers)
Date: 2013-03
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Related works:
Journal Article: Financing Experimentation (2014)
Working Paper: Financing experimentation (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:uwarer:270434

DOI: 10.22004/ag.econ.270434

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