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  A Reconsideration of the Jensen-Meckling Model of Outside Finance. [Award for the Most Significant Paper in 2009, Journal of Financial Intermediation]

Hellwig, M. (2007). A Reconsideration of the Jensen-Meckling Model of Outside Finance. [Award for the Most Significant Paper in 2009, Journal of Financial Intermediation].

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 Creators:
Hellwig, Martin1, Author              
Affiliations:
1Max Planck Institute for Research on Collective Goods, Max Planck Society, ou_2173688              

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Free keywords: D86, G30, G32 Financial Contracting, Debt Finance, Equity Finance, Moral Hazard, Risk Choices
 Abstract: The paper studies outside finance in a model of two-dimensional moral hazard, involving risk choices as well as effort choices. If the entrepreneur has insufficient funds, a first-best outcome cannot be implemented. Second-best outcomes involve greater failure risk than first-best outcomes. For a Cobb-Douglas technology, second-best effort and investment levels are smaller than first-best; for other technologies, they depend on the elasticity of substitution. If firm returns not too noisy signals of behaviour, suitable incentives can be provided by some mix of debt and equity issues. If firm returns involve too much noise, this is not possible.

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 Dates: 2007
 Publication Status: Published in print
 Pages: 60
 Publishing info: Bonn : Max Planck Institute for Research on Collective Goods
 Table of Contents: -
 Rev. Type: -
 Identifiers: Other: 2007/08
 Degree: -

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