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Irrational exuberance, entrepreneurial finance and public policy

Coelho, Marta, de Meza, David and Reyniers, Diane J. (2004) Irrational exuberance, entrepreneurial finance and public policy. International Tax and Public Finance, 11 (4). pp. 391-417. ISSN 0927-5940

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Abstract

Unrealistic optimism is a well documented phenomenon. This paper argues that it is important in many economic contexts. Focusing on start-up finance for businesses, optimism may be responsible for or consistent with features such as credit rationing or redlining that are normally taken as symptoms of under-provision of finance requiring intervention to expand lending. Optimism leads to the opposite conclusion, at least if it is legitimate to use fiscal policy to counteract systematic error. The paper reports on an experiment in which, due to optimism, the lower the prizes to entrepreneurial activity the higher the subject's expected income.

Item Type: Article
Official URL: http://www.springerlink.com/content/102915/
Additional Information: © 2004 Kluwer Academic Publishers
Library of Congress subject classification: H Social Sciences > HJ Public Finance
Sets: Research centres and groups > Managerial Economics and Strategy Group
Departments > Accounting and Finance
Departments > Management
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 10 Sep 2008 13:11
URL: http://eprints.lse.ac.uk/17279/

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