• Business
  • Published 2004

Financial Intermediation, Moral Hazard, And Pareto Inferior Trade

  title={Financial Intermediation, Moral Hazard, And Pareto Inferior Trade},
  author={Bodil Olai Hansen and Hans Keiding},
We consider a simple model of international trade under uncertainty, where production takes time and is subject to uncertainty. The riskiness of production depends on the choices of the producers, not observable to the general public, and these choices are influenced by the availability and cost of credit. If investment is financed by a bond market, then a situation may arise where otherwise identical countries end up with different levels of interest and different choices of technique, which… CONTINUE READING