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Credit rationing, wealth inequality, and allocation of talent

Maitreesh Ghatak (), Massimo Morelli and Tomas Sjoström

ICER Working Papers - Applied Mathematics Series from ICER - International Centre for Economic Research

Abstract: We provide a simple model of credit rationing with endogenous occupational chioce. Entrepreneurial talent is subject to private information and to screen borrowers banks ask for collateral. The interplay between the labour market and the credit market leads to multiple equilibria in a natural way. The higher is the wage rate, the lower is the collateral needed to discourage less talented agents from borrowing. This allows a greater number of poor but talented agets to become entrepreneurs, thereby increasing labor demand and justifying the wage increase. We discuss the implications of our model for economic policy which are very different from those suggested by models that focus on the credit market only.

Keywords: occupational choice; adverse selection; wealth distribution; credit rationing (search for similar items in EconPapers)
JEL-codes: C61 C62 D51 G12 (search for similar items in EconPapers)
Date: 2001-07
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Related works:
Working Paper: Credit Rationing, Wealth Inequality, and Allocation of Talent (2002) Downloads
Working Paper: Credit Rationing, Wealth Inequality, and Allocation of Talent (2002) Downloads
Working Paper: Credit rationing, wealth inequality and allocation of talent (2002) Downloads
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