Entrepreneurship and firm heterogeneity with limited enforcement

  title={Entrepreneurship and firm heterogeneity with limited enforcement},
  author={Alexander Monge-Naranjo},
  • Alexander Monge-Naranjo
  • Published 2008
The presence of credit constraints can shape the entry, growth, and size distribution of firms. In this paper, I consider the optimal contract between banks and entrepreneurs in an economy in which limitations in the punishments for default induce limitations in the credit available to entrepreneurs. I derive a very simple characterization of the optimal contract at the time of inception of firms and show how this optimal contract shapes the evolution of the size distribution of firms and the… CONTINUE READING

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