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Does asymmetric information promote talented people?

Ana Hidalgo-Cabrillana ()

UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía

Abstract: The existing literature regarding issues of imperfect capital markets in connection with intergenerational mobility recognizes that imperfections in the capital markets represent a barrier to intergenerational mobility. This paper argues against this general thought. Contrary to this opinion, our model shows that when banks do not know the ability of the borrower, they respond to this asymmetry of information by devoting higher loan to talented borrowers. A force that helps poor and talented individuals to become educated and to catch up with the rich ones.

Date: 2004-05
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