Asymmetric information, bank lending and implicit contracts: the winner's curse
AbstractThe purpose of this note is to point out an error in a widely cited paper by Sharpe (1990) on long-term bank-firm relationships and to provide a correct analysis of the problem. The model studies repeated lending under asymmetric information which leads to winner's-curse type distortions of competition. Contrary to the claims in Sharpe (1990), this game only has an equilibriuim in mixed strategies, which features a partial informational lock-in by firms and random termination of lending relationships.
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Bibliographic InfoArticle provided by Elsevier in its journal Finance Research Letters.
Volume (Year): 1 (2004)
Issue (Month): 1 (March)
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Other versions of this item:
- Ernst-Ludwig VON THADDEN, 1998. "Asymmetric Information, Bank Lending and Implicit Contracts : The Winner's Curse," Cahiers de Recherches Economiques du DÃ©partement d'EconomÃ©trie et d'Economie politique (DEEP) 9809, Université de Lausanne, Faculté des HEC, DEEP.
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
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