Asymmetric Information,Auditing Commitment,and Economic Growth |
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Authors: | Wai‐Hong Ho Yong Wang |
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Institution: | 1. Department of Economics, Faculty of Social Sciences and Humanities, University of Macau;2. Department of Economics and Finance, City University of Hong Kong |
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Abstract: | We analyze in this paper the growth and welfare consequences stemming from the lack of auditing commitment in a credit market with costly state verification. By studying two endogenous growth models, one of which allows lenders to commit to costly auditing strategies, whereas the other does not, we show that the inability to commit serves as a source of informational friction that results in more stringent contractual terms, which, in turn, result in lower capital accumulation, growth, and welfare. From the policy perspective, our analysis suggests a new micro‐economic channel through which institutional failings hinder economic growth and social welfare. |
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Keywords: | D82 O41 |
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