Asymmetric information, option to wait to invest and the optimal level of investment

Robert Lensink and Elmer Sterken

No 199917, CCSO Working Papers from University of Groningen, CCSO Centre for Economic Research

Abstract: This paper analyzes equilibrium rationing on credit markets in the case of gains from waiting to acquire information about the future profitability of investment. We compare the competitive outcome with the socially optimal level of investment. We show that the opportunity to postpone investment changes the nature of the inefficiencies of the competitive outcome fundamentally. Without the option to wait, high risk firms tend to invest and the outcome is characterized by a situation of underinvestment. If firms can wait high risk firms benefit the most from waiting. In this case low risk firms tend to invest immediately and a situation of overinvestment will result, since from the banks' point of view firms do not delay enough.

Date: 1999
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://irs.ub.rug.nl/ppn/241132908 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://irs.ub.rug.nl/ppn/241132908 [302 Found]--> https://irs.ub.rug.nl/ppn/241132908 [302 Found]--> https://www.rug.nl/research/portal/publications/pub(4b4fd91e-61c9-413d-8723-8c029a81f6e6).html [301 Moved Permanently]--> https://research.rug.nl/en/publications/pub(4b4fd91e-61c9-413d-8723-8c029a81f6e6).html)

Related works:
Journal Article: Asymmetric information, option to wait to invest and the optimal level of investment (2001)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gro:rugccs:199917

Access Statistics for this paper

More papers in CCSO Working Papers from University of Groningen, CCSO Centre for Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by Hanneke Tamling ().