IDEAS home Printed from https://ideas.repec.org/a/ier/iecrev/v44y2003i4p1359-1382.html
   My bibliography  Save this article

Investment Decisions, Financial Flows, and Self-Enforcing Contracts

Author

Listed:
  • Christian Sigouin

Abstract

This article studies the role of risk sharing in dynamic credit relationships that are secured by physical collateral. It is shown that, when borrowers and lenders cannot commit not to terminate relationships (through default in the first case and liquidation in the second), overinvestment is optimal. Overinvestment facilitates risk sharing in this context: It occurs in expectation of periods in which lenders are unwilling to supply all the funds necessary to achieve complete risk sharing. Typically, overinvestment happens when investment decreases; it slows down the pace at which the capital stock is reduced and therefore results in production smoothing. Copyright 2003 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

Suggested Citation

  • Christian Sigouin, 2003. "Investment Decisions, Financial Flows, and Self-Enforcing Contracts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(4), pages 1359-1382, November.
    • Handle: RePEc:ier:iecrev:v:44:y:2003:i:4:p:1359-1382
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Thomas, Jonathan P. & Worrall, Tim, 2018. "Dynamic relational contracts under complete information," Journal of Economic Theory, Elsevier, vol. 175(C), pages 624-651.
    2. Árpád Ábrahám & Sarolta Laczó, 2018. "Efficient Risk Sharing with Limited Commitment and Storage," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(3), pages 1389-1424.
    3. Kenneth Daniels & Fernando Díaz & Gabriel Ramírez, 2011. "The Existence of Corporate Bond Clawbacks (IPOCs): Theory and Evidence," Working Papers 28, Facultad de Economía y Empresa, Universidad Diego Portales.
    4. Jonathan P Thomas & Tim Worrall, 2007. "Dynamic Relational Contracts with Consumption Constraints," Keele Economics Research Papers KERP 2007/16, Centre for Economic Research, Keele University.
    5. Christian Calmès, 2004. "Financial Market Imperfection, Overinvestment,and Speculative Precaution," Staff Working Papers 04-27, Bank of Canada.
    6. Thomas, Jonathan P. & Worrall, Tim, 2014. "Dynamic Relational Contracts under Complete Information," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 2015-47, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    7. Jonathan P Thomas & Tim Worrall, 2010. "Dynamic Relational Contracts with Credit Constraints," Economics Discussion Paper Series 1009, Economics, The University of Manchester.
    8. Natalia Kovrijnykh, 2008. "Debt Contracts with Short-Term Commitment," 2008 Meeting Papers 558, Society for Economic Dynamics.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ier:iecrev:v:44:y:2003:i:4:p:1359-1382. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley-Blackwell Digital Licensing or the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/deupaus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.