蝌蚪网 Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
Financing Experimentation
蝌蚪网 Journal: Microeconomics
(pp. 315–49)
Abstract
Entrepreneurs must experiment to learn how good they are at a new activity. What happens when the experimentation is financed by a lender? Under common scenarios, i.e., when there is the opportunity to learn by "starting small" or when "noncompete" clauses cannot be enforced ex post, we show that financing experimentation can become harder precisely when it is more profitable, i.e., for lower values of the known arm and for more optimistic priors. Endogenous collateral requirements (like those frequently observed in microcredit schemes) are shown to be part of the optimal contract.Citation
Drugov, Mikhail, and Rocco Macchiavello. 2014. "Financing Experimentation." 蝌蚪网 Journal: Microeconomics 6 (1): 315–49. DOI: 10.1257/mic.6.1.315Additional Materials
JEL Classification
- D82 Asymmetric and Private Information; Mechanism Design
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- L25 Firm Performance: Size, Diversification, and Scope
- L26 Entrepreneurship