This paper explores the role of public debt and fiscal deficits on factor productivity in an economy with credit market frictions and heterogeneous firms. When credit market conditions are sufficiently weak, low interest rates permit the government to run Ponzi schemes so that permanent primary...

We examine how financial constraints in portfolios of suppliers affect cash holdings at the level of the customer. Utilizing a data set of private and public French companies and their suppliers, we show that customers rely on their financially unconstrained suppliers to provide them with backup...

Financial institutions are key to allocate capital to its most productive uses. In order to examine the relationship between bank credit and firm-level productivity in the context of different financial markets set-ups, we introduce a model of overlapping generations of entrepreneurs under...

Financial institutions are key to allocate capital to its most productive uses. In order to examine the relationship between productivity and bank credit in the context of different financial market set-ups, we introduce a model of overlapping generations of entrepreneurs under complete and...

The importance of credit market imperfections for investment behavior is analyzed using Swedish firm level data. Adjustment and agency costs are included in the neoclassical theory of optimal financial and investment decisions for firms. In order to model the possible occurrence of agency costs...

This paper studies the choice between investment in new and used capital. We argue that used capital inherently relaxes credit constraints and thus firms which are more credit constrained invest more in used capital. Used capital is cheap relative to new capital in terms of its purchase price...

We show how financial and managerial constraints impede experimentation and thus limit learning about the profitability of investments. Imperfect information about one’s own type, but willingness to experiment to learn one’s type, leads to short-run negative expected returns to investments,...

We explore how financial constraints distort the entry decisions among otherwise productive entrepreneurs and limit growth of promising young firms. A model of liquidity-constrained entrepreneurs suggests that the easing of credit constraints can induce more entry of firms with greater long-run...

This note develops an overlapping generations model with credit rationing on research and development, in which both are determined simultaneously and endogenously. The model provides a useful tool to examine different policies that may help alleviate the negative effect of �financial...

The paper analyzes a linear growth model with idiosyncratic productivity shocks and self-enforcing loan contracts. Agents cannot commit to repay their loans because of insuficient collateral, but the threat of credit market exclusion prevents agents from default. Credit repayment is enforced by...