The Stiglitz-Weiss Condition for Rationing and Endogenous Self-finance: A Comment
Peter S. Faynzilberg
The Aleph Group, LLC
Contrary to the assertions of de Meza and Webb (2006), we find that (i) there is no conflict between borrowing costs and the condition for rationing put forth in Stiglitz and Weiss (1981), and (ii) entrepreneurs finance production solely by debt. It is shown also that under the timing conventions of Stiglitz and Weiss (1981) borrowers use either none or all of their liquid endowments.
Number of Pages in PDF File: 10
Keywords: Incomplete information, investment, moral hazard
JEL Classification: D41, D45, D53
Date posted: June 27, 2008 ; Last revised: September 16, 2008