Capital Accumulation in the Presence of Informal Credit Contracts: Does the Incentive Mechanism Work Better than Credit Rationing Under Asymmetric Information?

Credit markets with asymmetric information often prefer credit rationing as a profit maximizing device. This paper asks whether the presence of informal credit markets reduces the cost of credit rationing, that is, whether it can alleviate the impact of asymmetric information based on the available information. We used a dynamic general equilibrium model with heterogenous agents to assess this. Using Indian credit market data our study shows that the presence of informal credit market can reduce the cost of credit rationing by separating high risk firms from the low risk firms in the informal market. But even after this improvement, the steady state capital accumulation is still much lower as compared to incentive based market clearing rates. Through self revelation of each firm's type, based on the incentive mechanism, banks can diversify their risk by achieving a separating equilibrium in the loan market. The incentive mechanism helps banks to increase capital accumulation in the long run by charging lower rates and lending relatively higher amount to the less risky firms. Another important finding of this study is that self-revelation leads to very significant welfare improvement, as measured by consumptiuon equivalence.

Mechanism of anti-tumor activity of adenovirus type 5 E1A in ovarian cancer

The adenovirus type 5 E1A gene was originally developed as a gene therapy to inhibit tumorigenicity of HER-2-overexpressing cells by transcriptional downregulation of HER-2. Our goal is to improve the overall efficacy of E1A gene therapy. To achieve this goal, we have conducted two preclinical experiments. ^ First, we hypothesized that Bcl-2 overexpressing ovarian cancer is resistant to E1A gene therapy. This hypothesis is based on that the 19 kDa protein product of the adenoviral E1B gene which is homologous to Bcl-2 inhibits E1A-induced apoptosis. Treating high Bcl-2-xpressing cells with E1A in combination with an antisense oligonucleotide to Bcl-2 (Bcl-2-ASO) resulted in a significant decrease in cell viability due to an increased rate of apoptosis relative to cells treated with E1A alone. In an ovarian cancer xenograft model, mice implanted with low HER-2, high Bcl-2 cells, treated with E1A plus Bcl-2-ASO led to prolonged survival. Bcl-2 thus may serve as a predictive molecular marker enabling us to select patients with ovarian cancer who will benefit significantly from E1A gene therapy. ^ Second, we elucidated the molecular mechanism governing the anti-tumor effect of E1A in ovarian cancer to identify a more potent tumor suppressor gene. We identified PEA-15 (phospho-protein enriched in astrocytes) upregulated in E1A transfected low HER-2-expressing OVCAR-3 ovarian cancer cell, which showed decreased cell proliferation. PEA-15 moved ERK from the nucleus to the cytoplasm and inhibited ERK-dependent transcription and proliferation. Using small interfering RNA to knock down PEA-15 expression in OVCAR-3 cells made to constitutively express E1A resulted in accumulation of phosphoERK in the nucleus, an increase in Elk-1 activity, DNA synthesis, and anchorage-independent growth. PEA-15 also independently suppressed colony formation in some breast and ovarian cancer cell lines in which E1A is known to have anti-tumor activity. We conclude that the anti-tumor activity of E1A depends on PEA-15. ^ In summary, (1) Bcl-2 may serve as a predictive molecular marker of E1A gene therapy, allowing us to select patients and improve efficacy of E1A gene therapy. (2) PEA-15 was identified as a component of the molecular mechanism governing the anti-tumor activity of E1A in ovarian cancer, (3) PEA-15 may be developed as a novel therapeutic gene. ^