TY - JOUR
T1 - Raising capital from heterogeneous investors†
AU - Halac, Marina
AU - Kremer, Ilan
AU - Winter, Eyal
N1 - Publisher Copyright:
© 2020 American Economic Association. All rights reserved.
PY - 2020/3
Y1 - 2020/3
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.
UR - http://www.scopus.com/inward/record.url?scp=85085367490&partnerID=8YFLogxK
U2 - 10.1257/aer.20190234
DO - 10.1257/aer.20190234
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AN - SCOPUS:85085367490
SN - 0002-8282
VL - 110
SP - 889
EP - 921
JO - American Economic Review
JF - American Economic Review
IS - 3
ER -