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Halac, Marina, Kremer, Ilan and Winter, Eyal (2020) Raising capital from heterogeneous investors. American Economic Review, 110 (3). pp. 889-921. doi:10.1257/aer.20190234
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Official URL: https://doi.org/10.1257/aer.20190234
Abstract
A firm raises capital from multiple investors to fund a project. The project succeeds only if the capital raised exceeds a stochastic threshold, and the firm offers payments contingent on success. We study the firm's optimal unique-implementation scheme, namely the scheme that guarantees the firm the maximum payoff. This scheme treats investors differently based on size. We show that if the distribution of the investment threshold is log-concave, larger investors receive higher net returns than smaller investors. Moreover, higher dispersion in investor size increases the firm's payoff. Our analysis highlights strategic risk as an important potential driver of inequality.
| Item Type: | Journal Article | ||||||
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| Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HC Economic History and Conditions H Social Sciences > HD Industries. Land use. Labor H Social Sciences > HG Finance |
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| Divisions: | Faculty of Social Sciences > Economics | ||||||
| Library of Congress Subject Headings (LCSH): | Capital, Capitalists and financiers , Investments , Venture capital | ||||||
| Journal or Publication Title: | American Economic Review | ||||||
| Publisher: | American Economic Association | ||||||
| ISSN: | 0002-8282 | ||||||
| Official Date: | March 2020 | ||||||
| Dates: |
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| Date of first compliant deposit: | 14 January 2020 | ||||||
| Volume: | 110 | ||||||
| Number: | 3 | ||||||
| Page Range: | pp. 889-921 | ||||||
| DOI: | 10.1257/aer.20190234 | ||||||
| Status: | Peer Reviewed | ||||||
| Publication Status: | Published | ||||||
| Publisher Statement: | "Copyright © 1998, 1999, 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019 by the American Economic Association. Permission to make digital or hard copies of part or all of American Economic Association publications for personal or classroom use is granted without fee provided that copies are not distributed for profit or direct commercial advantage and that copies show this notice on the first page or initial screen of a display along with the full citation, including the name of the author. Copyrights for components of this work owned by others than AEA must be honored. Abstracting with credit is permitted. The author has the right to republish, post on servers, redistribute to lists and use any component of this work in other works. For others to do so requires prior specific permission and/or a fee. Permissions may be requested from the American Economic Association Administrative Office by going to the Contact Us form and choosing ""Copyright/Permissions Request"" from the menu. " | ||||||
| Access rights to Published version: | Restricted or Subscription Access | ||||||
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