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

Hellwig, Martin

Item

ITEM ACTIONSEXPORT

Add to Basket

Local TagsRelease HistoryDetailsSummary

Released

Paper

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

MPS-Authors

/persons/resource/persons183129

Hellwig, Martin
Max Planck Institute for Research on Collective Goods, Max Planck Society;

External Resource

http://www.coll.mpg.de/pdf_dat/2007_08online.pdf
(Preprint)

Fulltext (restricted access)

There are currently no full texts shared for your IP range.

Fulltext (public)

There are no public fulltexts stored in PuRe

Supplementary Material (public)

There is no public supplementary material available

Citation

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].

Cite as: https://hdl.handle.net/11858/00-001M-0000-0028-6E70-2

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.