Library Header Image
LSE Research Online LSE Library Services

Too much investment: a problem of asymmetric information

de Meza, David and Webb, David C. (1987) Too much investment: a problem of asymmetric information. Quarterly Journal of Economics, 102 (2). pp. 281-292. ISSN 0033-5533

Full text not available from this repository.

Identification Number: 10.2307/1885064


This paper shows that under plausible assumptions, the inability of lenders to discover all of the relevant characteristics of borrowers results in investment in excess of the socially efficient level. Raising the rate of interest above the free market level will restore optimality. This conflicts with generally held views and is contrasted with the Stiglitz-Weiss model. It is shown that the assumptions which yield overinvestment support debt as the equilibrium method of finance. However, under the Stiglitz-Weiss assumptions, used to derive an underinvestment result, equity is shown to be the equilibrium method of finance.

Item Type: Article
Official URL:
Additional Information: © 1987 the President and Fellows of Harvard College and the Massachusetts Institute of Technology
Divisions: Management
Subjects: H Social Sciences > HB Economic Theory
Date Deposited: 06 May 2011 10:51
Last Modified: 21 Aug 2021 23:09

Actions (login required)

View Item View Item