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Debt contracts with ex-ante and ex-post asymmetric information: an example

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Author Info
G. Carlier (Universite Paris IX-Dauphine, CEREMADE, Place du Marechal De Lattre De Tassigny,)
L. Renou (University of Adelaide, School of Economics)

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Abstract

We consider a simple model of lending and borrowing combining two informational problems: adverse selection and costly state verification. Our analysis highlights the interaction between these two informational problems. We notably show that the higher the monitoring cost, the less discriminating the optimal menu of contracts is.

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File URL: http://129.3.20.41/eps/game/papers/0502/0502003.pdf
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Publisher Info
Paper provided by EconWPA in its series Game Theory and Information with number 0502003.

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Date of creation: 03 Feb 2005
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Handle: RePEc:wpa:wuwpga:0502003

Note: Type of Document - pdf. See Ludovic Renou webpage for a technical appendix.
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Web page: http://129.3.20.41

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Related research
Keywords: debt contracts; diversity of opinions; screening; costly monitoring; pooling.;

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Find related papers by JEL classification:
D8 - Microeconomics - - Information, Knowledge, and Uncertainty
G3 - Financial Economics - - Corporate Finance and Governance

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Boyd, John H & Smith, Bruce D, 1993. "The Equilibrium Allocation of Investment Capital in the Presence of Adverse Selection and Costly State Verification," Economic Theory, Springer, vol. 3(3), pages 427-51, July.
    Other versions:
  2. Robert Townsend, 1979. "Optimal contracts and competitive markets with costly state verification," Staff Report 45, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  3. Guillaume Carlier & Ludovic Renou, 2005. "A costly state verification model with diversity of opinions," Economic Theory, Springer, vol. 25(2), pages 497-504, 02. [Downloadable!] (restricted)
  4. Gale, Douglas & Hellwig, Martin, 1985. "Incentive-Compatible Debt Contracts: The One-Period Problem," Review of Economic Studies, Blackwell Publishing, vol. 52(4), pages 647-63, October. [Downloadable!] (restricted)
  5. Rochet, Jean-Charles, 1987. "A necessary and sufficient condition for rationalizability in a quasi-linear context," Journal of Mathematical Economics, Elsevier, vol. 16(2), pages 191-200, April. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Allen N. Berger & Marco A. Espinosa-Vega & W. Scott Frame & Nathan H. Miller, 2007. "Why do borrowers pledge collateral? new empirical evidence on the role of asymmetric information," Working Paper 2006-29, Federal Reserve Bank of Atlanta. [Downloadable!]
  2. Stefan Krasa & Tridib Sharma & Anne Villamil, 2008. "Bankruptcy and firm finance," Economic Theory, Springer, vol. 36(2), pages 239-266, August. [Downloadable!] (restricted)
  3. Ludovic Renou, 2008. "Multi-lender coalitions in costly state verification models," Economic Theory, Springer, vol. 36(3), pages 407-433, September. [Downloadable!] (restricted)
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