Economic Performance, Distribution and Credit Restrictions Under Variable Investment


Potential entrepreneurs require capital for investment in projects. They are dierentiated by wealth and can abscond with the funds from a loan. In this setting, agents with little wealth are unable to fund their projects, those with intermediate levels of wealth can fund ineciently sized projects and only wealthy entrepreneurs can attain the ecient rm size. We show that improvements in the legal framework for loans improves economic eciency, by improving access to credit and by increasing the size of loans for projects. We also examine the eects of wealth redistribution. The eects depend on the aggregate wealth of the economy; in countries with low wealth, redistribution may reduce economic eciency and GDP, while it may increase economic eciency and GDP in a wealthy economy. Next, we consider an economy with labor and risky projects. We recover the main results of the simpler model, and we examine the eects of having priority of workers in bankruptcy. We show that it leads to conicting interests between workers in large and small rms as well as conicts between small and large entrepreneurs with respect to improvements in the nancial system. 

Department of Industrial Engineering, University of Chile
Wednesday, August 26, 2015 - 13:00 to 14:00
Room 23, Department of Industrial Engineering, University of Chile ( Domeyko 2338, second floor, Santiago)