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ARE BAD FIRMS BENEFICIAL TO GROWTH? *
Author(s) -
CASERTA MAURIZIO,
REITO FRANCESCO
Publication year - 2012
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/j.1467-9957.2011.02243.x
Subject(s) - monopolistic competition , adverse selection , economics , monetary economics , microeconomics , monopoly
In this paper we analyse a case of adverse selection in the credit market to show that, in the presence of a monopolistic bank, bad firms can be beneficial to accumulation and growth. Two main implications are drawn: first, even if classical diminishing returns on technology are ruled out, growth declines over time. Second, any attempt to make banks more capable of discriminating between bad and good firms will resolve itself into a restraint to growth.