Underwriting Ventures : Trust but Verify
نویسندگان
چکیده
What determines the choice of a production technology within a country? While there could be many factors, the e¢ ciency of the countrys nancial system may play a signi cant role. To address this question, a dynamic contract model is embedded into a general equilibrium setting with competitive intermediation. The ability of an intermediary to monitor the activity of a rm plays an important role in the decision to underwrite a project or not. Can such a theory help to explain the di¤erences in TFP and establishment-size distributions between Mexico and the U.S.? A numerical example suggests that the answer is yes. Keywords: Costly state veri cation, dynamic contract theory, economic development, establishmentsize distributions, nancial intermediation, Mexico and U.S., monitoring, productivity, technology adoption, underwriting, ventures A iations: University of Pennsylvania and Federal Reserve Bank of St. Louis Preliminary and incomplete: This is a report on some research in progress. Comments are welcome. Please contact Hal Cole at colehl sas.upenn.edu
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