Inequality of Opportunity in the Credit Market

Credit market imperfections can prevent the poor from making profitable investments. Under asymmetric information observable features, such as wealth and collateral, play an important role in determining who gets credit, in violation of the Equality of Opportunity principle. We define equality of opportunity as the equal possibility of getting credit for a given aversion to effort. We first establish that, due to larger cross subsidization in high collateral classes of borrow- ers, richer individuals are more likely to get credit for a given aversion to effort. Our second result is that Inequality of Opportunity is associated with an inefficient allocation of resources among classes of borrowers. The marginal borrower in classes that post more collateral exerts less effort in equilibrium (and therefore produces lower aggregate surplus) than the marginal borrower in lower collateral classes. This suggests that public credit policies should be targeted at poorer classes of would be borrowers both for equity and efficiency reasons, which rarely occurs in practice.equality of opportunity; credit; moral hazard; crosssubsidization; collateral

Inequality of opportunity in the credit market

Credit market imperfections can prevent the poor from making pro table investments. Under asymmetric information observable features, such as wealth and collateral, play an important role in determining who gets credit, in violation of the Equality of Opportunity principle. We de ne equality of opportunity as the equal possibility of getting credit for a given aversion to e¤ort. We rst establish that, due to larger cross subsidization in high collateral classes of borrowers, richer individuals are more likely to get credit for a given aversion to e¤ort. Our second result is that Inequality of Opportunity is associated with an ine¢ cient allocation of resources among classes of borrowers. The marginal borrower in classes that post more collateral exerts less e¤ort in equilibrium (and therefore produces lower aggregate surplus) than the marginal borrower in lower collateral classes. This suggests that public credit policies should be targeted at poorer classes of would be borrowers both for equity and e¢ ciency reasons, which rarely occurs in practice.equality of opportunity; credit; moral hazard; cross subsidization; collateral.

Wealth inequality, unequal opportunities and inefficient credit market

This paper investigates the impact of heterogeneous wealth on credit allocation from an egalitarian opportunity and an efficiency point of view. Under asymmetric information on both wealth and the responsibility variable there is no trade-off between equality and efficiency, actually wealth inequality delivers both inequality of opportunity and inefficiency. Due to decreasing absolute risk aversion, poor entrepreneurs, other things equal, realize better projects. This notwithstanding, due to the bidimensional hidden information, they may be rationed out or obtain a loan only at the cost of cross subsidizing bad projects realized by rich entrepreneurs. In the first case inefficiency arises in the form of insufficient investment, in the second in the form of inefficient projects being realized. An egalitarian redistribution of endowments may lead to perfect screening, no inefficiencies in the allocation of credit and equality of opportunity

Evaluating administrative burdens through SCM: some indications from the Italian experience

A methodology to measure administrative burdens, based on the Dutch Standard Cost Model (SCM), has been applied in a large number of European countries, coupled in most cases with the commitment to a reduction target. This paper compares the application of the method in different national context and discusses its weaknesses and strengths against more complete forms of evaluation of the adequacy of regulation. The paper also discusses some indication arisen during the measurement of administrative burdens through SCM in Italy. Our main conclusion is that the SCM is a potentially useful tool and could provide motivation for culture change in policymaking. Its major strength, which lies mainly in its pragmatic approach and the possibility of commitment on a quantitative target, may be at the same time a source of weakness and may deliver some misleading results. Also some basic concepts of the model need a more rigorous definition to be consistently applied in different countries.administrative burdens; better regulation; costs of regulation; European governance; standard cost model

Take the money and run: making profits by paying borrowers to stay home

Can a bank increase its profit by subsidizing inactivity? This paper suggests this may occur, due to the presence of hidden information, in a monopolistic credit market. Rather than offering credit in a pooling contract, a monopolist bank can sort borrowers through an appropriate subsidy to inactivity. Under some conditions, sorting may avoid the collapse of the market and increases the welfare of everybody. The bank increases its profits, good borrowers benefit from lower interest rates and bad potential borrowers from the subsidy. The subsidy policy however implies a cross subsidy between contracts and this is possible only under monopoly

Kiinan talouskasvun hidastuminen ja keskituloansa

Tutkielma on teoreettinen kirjallisuuskatsaus, jossa käsitellään Kiinan talouskasvua taloudellisen kehityksen, kasvun ja konvergenssin teorioiden kautta. Lisäksi tutkielmassa käsitellään keskituloansaa ja tekijöitä, jotka voivat ajaa Kiinan keskituloansaan. Keskituloansa on tilanne, jossa keskitulotasoinen maa ei voi enää kilpailla matalan tuottavuuden aloilla matalamman palkkatason maiden kanssa. Samalla maan instituutiot ja taloudelliset fundamentit eivät ole riittävän kehittyneitä, jotta maa voisi ylläpitää talouskasvuaan kasvattamalla kokonaistuottavuuttaan kehittyneiden maiden tavoin. Kasvun hidastuessa maa jää suhteellisen stagnaation tilaan ja lakkaa konvergoimasta kehittyneiden maiden kanssa. Tutkimusten mukaan keskitulotasoiset maat kokevat poikkeuksellisen korkealla todennäköisyydellä hidastuneen talouskasvun jaksoja. Keskitulotason maiden talouskasvu on epävakaata, koska niiden instituutiot ovat kehittymättömiä. Eteneminen ylemmälle tulotasolle vaatii rakennemuutoksia, jotka ovat poliittisesti hankalia toteuttaa. Esimerkiksi valtaapitävien intressit voivat estää maata toteuttamasta tarpeellisia rakennemuutoksia ja näin ajaa maan keskituloansaan. Kiinan teollisuussektorin reaalipalkat ovat 14-kertaistuneet vuosien 1980 ja 2015 välillä. Kiinan ikääntyvä väestö ja vuodesta 2012 alkaen supistunut työvoima ovat kasvattaneet palkkojen nousupainetta edelleen. Keskituloansan näkökulmasta Kiinan kyvykkyys kilpailla matalan tuottavuuden aloilla on heikentynyt ja paine siirtyä innovaatiokeskeiseen kasvustrategiaan kasvaa. Kiinan BKT:n kasvua ajavat edelleen raskaat investoinnit kiinteistösektorille ja infrastruktuuriin, vaikka näillä sektoreilla on ylikapasiteettia ja pääoman tuotto on laskenut. Vuonna 2009 aloitettu elvytyspolitiikka on kasvattanut Kiinan yrityslainakantaa nopeasti ja johtanut varjopankkisektorin kasvuun. Talouskasvu on ollut nopeaa, mutta kiinalaiset instituutiot ovat vielä kehittymättömät. Tähän mennessä ei ole näkynyt merkkejä Kiinan aidosta siirtymästä kohti "uutta normaalia" eli kestävää, mutta matalampaa talouskasvua. On Kiinan kommunistisen puolueen intressien mukaista, että talous kasvaa nykyistä vauhtia vähintään vuoteen 2020 asti. Näin Kommunistisen puolueen 18. puoluekokouksessa antama lupaus BKT:n kaksinkertaistamisesta aikavälillä 2010-2020 pitää ja Kiina saavuttaa "kohtalaisen hyvinvoinnin". Tutkielmani mukaan Kiinan talouskasvua uhkaa erinäiset kriisit joiden syveneminen voi ajaa Kiinan keskituloansaan

Mezzogiorno: una sfida possibile senza miracoli

Questo articolo discute le ragioni della fragilità dell'economia del Mezzogiorno prima della grande crisi e l'aggravamento del divario negli anni 2008-14. Si dimostra che l'ulteriore divaricazione tra aree del paese non è un destino ineluttabile. Una strategia di politica industriale semplice e mirata alla minimizzazione delle intermediazioni clientelari ha dato risultati positivi nel triennio 2015-7. Per il futuro tuttavia una significativa convergenza si potrà concretizzare solo a fronte di una ripresa di investimenti pubblici e privati in capitale fisico ed umano per i quali si esaminano alcune ipotesi concrete

Vitamin C Against Cancer

The selective anticancer properties of vitamin C are known since at least four decades. However, only recently in vitro studies have shown that vitamin C, in high enough concentrations, can efficiently and selectively kill a number of different human tumor cell lines, and these data have been confirmed in experimental animal tumor models. The first human clinical trials revealed that high doses of vitamin C administered by intravenous injection are not only very well tolerated but also substantially improve the quality of life of patients with clinically advanced cancer. However, the clinical evidence of the effectiveness of vitamin C in fighting off cancer is still controversial. The present chapter outlines the importance of vitamin C for a number of physiological functions, within the human body, and shows that there is a solid rationale for its use in the routine treatment of cancer, either alone or in combination with conventional treatment