Financing Experimentation

  • Rocco Macchiavello
  • Published 2013

Abstract

Entrepreneurs must experiment to learn how good they are at a new activity. What happens when the experimentation is …nanced by a lender? Under common scenarios, i.e., when there is the opportunity to learn by "starting small" or when "no-compete" clauses cannot be enforced ex-post, we show that …nancing experimentation can become harder precisely when it is more pro…table, i.e., for lower values of the known-arm and for more optimistic priors. Endogenous collateral requirements (like those frequently observed in micro-credit schemes) are shown to be part of the optimal contract.

3 Figures and Tables

Cite this paper

@inproceedings{Macchiavello2013FinancingE, title={Financing Experimentation}, author={Rocco Macchiavello}, year={2013} }