2. Ainu and Beatriu are savers who each have $100 to lend to Somerset Corp. Ainu and Beatriu, however, can determine Som
Posted: Sun Jun 05, 2022 11:54 am
2. Ainu and Beatriu are savers who each have $100 to lend to
Somerset Corp. Ainu and Beatriu, however, can determine Somerset’s
project only by doing research. The cost of research is $8, and
lenders cannot cooperate to share the cost of research. Ainu and
Beatriu know that half of firms have the safe project and half the
risky (inefficient) project. A safe project is risk free and costs
$200 and is guaranteed to deliver $230. The full surplus from the
project accrues to the lenders. The risk-free rate is 5 percent.
Assume that everyone is risk neutral and that each saver can
observe how the other lends.
Somerset Corp. Ainu and Beatriu, however, can determine Somerset’s
project only by doing research. The cost of research is $8, and
lenders cannot cooperate to share the cost of research. Ainu and
Beatriu know that half of firms have the safe project and half the
risky (inefficient) project. A safe project is risk free and costs
$200 and is guaranteed to deliver $230. The full surplus from the
project accrues to the lenders. The risk-free rate is 5 percent.
Assume that everyone is risk neutral and that each saver can
observe how the other lends.