We investigate the provision of public capital in an endogenous growth model with asymmetric information. In a credit market with costly screening, we show that the equilibrium contracts are characterized by the self-selection of borrowers. Through identifying an additional adverse effect of...

We analyze in this paper the growth and welfare consequences arising from the lack of auditing commitment in a credit market with costly state verification. Specifically, two endogenous growth models, of which one allows lenders to commit to costly auditing strategies to identify borrowers'...

This paper reexamines the issue of optimal capital income taxation in an endogenous growth model with overlapping generations. By assuming costly state verification for capital producing projects, we show that the presence of the information asymmetry creates inefficiency in the credit market by...