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Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
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TY - JOUR
T1 - Raising Capital from Heterogeneous Investors
AU - Halac, Marina
AU - Kremer, Ilan
AU - Winter, Eyal
N1 - Copyright 2020 American Economic Association. All rights reserved
PY - 2020/3/1
Y1 - 2020/3/1
N2 - 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.
AB - 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.
U2 - 10.1257/aer.20190234
DO - 10.1257/aer.20190234
M3 - Journal article
VL - 110
SP - 889
EP - 921
JO - The American Economic Review
JF - The American Economic Review
SN - 0002-8282
IS - 3
ER -