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Existence and monotonicity of optimal debt contracts in costly state verification models

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Author Info
Ludovic Renou () (European University Institute and CODE, Universitat Autonoma de Barcelona)
Guillaume Carlier () (Bordeaux I, MAB, UMR CNRS 5466 and Bordeaux IV, GRAPE, UMR CNRS 5113)

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Abstract

This note gives a simple proof of the existence and monotonicity of optimal debt contracts in simple models of borrowing and lending with ex-post asymmetric information, risk-averse agents and heterogeneous beliefs. Our argument is based on the concept of nondecreasing rearrangement and on a supermodular version of Hardy-Littlewood inequality.

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File URL: http://www.economicsbulletin.com/2003/volume7/EB-03G00004A.pdf
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Publisher Info
Article provided by Economics Bulletin in its journal Economics Bulletin.

Volume (Year): 7 (2003)
Issue (Month): 5 ()
Pages: 1-9
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:ebl:ecbull:v:7:y:2003:i:5:p:1-9

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Related research
Keywords: costly state verification; Hardy-Littlewood inequality; heterogeneity of beliefs; rearrangement techniques; risk-aversion;

Find related papers by JEL classification:
G0 - Financial Economics - - General
C6 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming

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. Townsend, Robert M., 1988. "Information constrained insurance : The revelation principle extended," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 411-450. [Downloadable!] (restricted)
  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)
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This page was last updated on 2009-12-12.

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