Are firms credit-constrained, or do they just look that way? We develop methods to distinguish exogenous borrowing limits from endogenous constraints that arise from incentive problems.

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Abstract

Are firms and households constrained in the use of a productive input? Theoretical approaches to this question range from exogenously imposed credit allocation rules to endogenous market failures stemming from limited-commitment or moral-hazard problems. We develop and implement econometric methods that allow us to distinguish among these different sources of constraints. We apply these methods to Thai data on rice farmers and find evidence consistent with moral hazard but not with exogenous credit constraints.

BibTeX

@Article{	  lehnert-ligon-townsend99,
  author	= {Andreas Lehnert and Ethan Ligon and Robert Townsend},
  title		= {Liquidity Constraints and Incentive Contracts},
  journal	= {Macroeconomic Dynamics},
  year		= 1999,
  volume	= 3,
  number	= 1,
  pages		= {1--47},
  doi		= {10.1017/S1365100599010019}
}