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Moral Hazard/Loan Seniority. Consider a risk neutral entrepreneur i endowed with a business project that requires investment of / and will generate stochastic revenue equal

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Moral Hazard/Loan Seniority. Consider a risk neutral entrepreneur i endowed with a business project that requires investment of / and will generate stochastic revenue equal R with probability p; and 0 with probability 1 - pa. If the business is managed efficiently pi = PH. If inefficiently, pi = PL.where PL I > PLR + B The entrepreneur is endowed with assets A

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