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Entrepreneurial Abilities and Liabilities in a Model of Self-Selection
The Bell Journal of Economics
Vol. 14, No. 1 (Spring, 1983), pp. 70-80
Published by: RAND Corporation
Stable URL: http://www.jstor.org/stable/3003538
Page Count: 11
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The role of the liability form as a signalling device is analyzed in a model of occupational choice (entrepreneurs, employees), with asymmetric information in loan markets about the abilities of entrepreneurs. The properties of the equilibrium are described. When factor prices are exogenous, the feasibility of limited liability is a Pareto improvement over a regime where there is only unlimited liability. This result does not hold when factor prices are endogenous.
The Bell Journal of Economics © 1983 RAND Corporation