The behavior of private entrepreneurs in an imperfect financial market

Tao Gu ()
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Tao Gu: Daito Bunka University

Economics Bulletin, 2020, vol. 40, issue 1, 349-358

Abstract: In this paper, we investigate the behavior of private entrepreneurs when an instrument that mitigates financing constraints is introduced in an imperfect financial market. If entrepreneurs face limitations on renting capital, it is optimal to accept the relaxation of financing constraints to overcome this obstacle to growth. However, acceptance involves a reduction in the efficiency of production. In this simulation exercise, we show that private entrepreneurs are likely to accept the relaxation of financing constraints to enable rapid growth in the early stages of the reform; however, they will reject it when the deterioration in production dominates the benefit from capital financing.

JEL-codes: E2 (search for similar items in EconPapers)
Date: 2020-02-05
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