Project riskiness and credit rationing:-
Consider the basic, fixed-investment model (the investment is I, the entrepreneur borrows I -A; the probability of success is pH (no private benefit) or pL = pH - ?p (private benefit B), success (failure) yields verifiable profit R (respectively 0)). There are two variants, "A" and "B," of the projects, which differ only with respect to "riskiness":
![](https://book.transtutors.com/qimg/3d57c0c0-b54f-4a0f-9f11-bded243a2485.png)
so project B is "riskier." The investment cost is the same for both variants and, furthermore,
![](https://book.transtutors.com/qimg/2643103c-aebc-4492-b7a3-666fef3d685a.png)
Which variant is less prone to credit rationing?