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Multiple Lending and Constrained Efficiency in the Credit Market

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Author Info
Andrea Attar (IDEI, Université de Toulouse I and Università di Roma, La Sapienza)
Eloisa Campioni (DPTEA, Luiss Guido Carli, Rome)
Gwenael Piaser (Università Ca' Foscari di Venezia)

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Abstract

This paper studies the relationship between competition and incentives in an economy with financial contracts. We concentrate on non-exclusive credit relationships, those where an entrepreneur can simultaneously accept more than one contractual offer. Several homogeneous lenders compete on the contracts they offer to finance the entrepreneur's investment project. We model a common agency game with moral hazard, and characterize its equilibria. As expected, notwithstanding the competition among the principals (lenders), non-competitive outcomes can be supported. In particular, positive profit equilibria are pervasive. We then provide a complete welfare analysis and show that all equilibrium allocations turn out to be constrained Pareto efficient.

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Publisher Info
Article provided by Berkeley Electronic Press in its journal Contributions to Theoretical Economics.

Volume (Year): 6 (2006)
Issue (Month): 1 ()
Pages: 1253-1253
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Handle: RePEc:bep:thecon:v:6:y:2006:i:1:p:1253-1253

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Related research
Keywords: common agency moral hazard Pareto efficiency second best

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Find related papers by JEL classification:
D4 - Microeconomics - - Market Structure and Pricing

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. Patrick Bolton & Xavier Freixas, 2006. "Corporate Finance and the Monetary Transmission Mechanism," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 19(3), pages 829-870. [Downloadable!] (restricted)
  2. Enrica Detragiache & Paolo Garella & Luigi Guiso, 2000. "Multiple versus Single Banking Relationships: Theory and Evidence," Journal of Finance, American Finance Association, vol. 55(3), pages 1133-1161, 06. [Downloadable!] (restricted)
  3. David Martimort & Lars Stole, 2002. "The Revelation and Delegation Principles in Common Agency Games," Econometrica, Econometric Society, vol. 70(4), pages 1659-1673, July. [Downloadable!] (restricted)
  4. Michael Peters, 1999. "Common Agency and the Revelation Principle," Working Papers peters-99-01, University of Toronto, Department of Economics. [Downloadable!]
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  5. Bernheim, B Douglas & Whinston, Michael D, 1998. "Incomplete Contracts and Strategic Ambiguity," American Economic Review, American Economic Association, vol. 88(4), pages 902-32, September. [Downloadable!] (restricted)
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  6. Repullo,R. & Suarez,J., 1996. "Entrepreneurial Moral Hazard and Bank Monitoring: A Model of the Credit Channel," Papers 9604, Centro de Estudios Monetarios Y Financieros-.
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  7. Bisin, Alberto & Gottardi, Piero, 1999. "Competitive Equilibria with Asymmetric Information," Journal of Economic Theory, Elsevier, vol. 87(1), pages 1-48, July. [Downloadable!] (restricted)
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  8. Petersen, Mitchell A & Rajan, Raghuram G, 1995. "The Effect of Credit Market Competition on Lending Relationships," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 407-43, May. [Downloadable!] (restricted)
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  9. Christine A. Parlour & Uday Rajan, 2001. "Competition in Loan Contracts," American Economic Review, American Economic Association, vol. 91(5), pages 1311-1328, December. [Downloadable!] (restricted)
  10. Peters, Michael, 2003. "Negotiation and take it or leave it in common agency," Journal of Economic Theory, Elsevier, vol. 111(1), pages 88-109, July. [Downloadable!] (restricted)
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  11. Holmstrom, Bengt & Tirole, Jean, 1997. "Financial Intermediation, Loanable Funds, and the Real Sector," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 663-91, August.
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  12. Alberto Bisin & Danilo Guaitoli, 1998. "Moral Hazard and Non-Exclusive Contracts," Economics Working Papers 345, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
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  13. Charles M. Kahn & Dilip Mookherjee, 1998. "Competition and Incentives with Nonexclusive Contracts," RAND Journal of Economics, The RAND Corporation, vol. 29(3), pages 443-465, Autumn. [Downloadable!] (restricted)
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  14. David Martimort & Lars Stole, 2003. "Contractual Externalities and Common Agency Equilibria," Advances in Theoretical Economics, Berkeley Electronic Press, vol. 3(1), pages 1037-1037. [Downloadable!] (restricted)
  15. Ilya Segal & Michael D. Whinston, 2003. "Robust Predictions for Bilateral Contracting with Externalities," Econometrica, Econometric Society, vol. 71(3), pages 757-791, 05. [Downloadable!] (restricted)
  16. MARTIMORT, David & STOLE, Lars, 1999. "Contractual Externalities and Common Agency Equilibria," IDEI Working Papers 110, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2003. [Downloadable!]
  17. Bizer, David S & DeMarzo, Peter M, 1992. "Sequential Banking," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 41-61, February. [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. Agar Brugiavini & Gwenaël Piaser, 2006. "Nonexclusivity and adverse selection: An application to the annuity market," Working Papers of CREFI-LSF (Centre of Research in Finance - Luxembourg School of Finance) 06-03, CREFI-LSF, University of Luxembourg. [Downloadable!]
    Other versions:
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