Financial regulators recognize certain credit rating agencies for regulatory purposes. However, it is often argued that credit rating agencies have an incentive to assign inflated ratings. This paper studies a repeated principal-agent problem in which a regulator approves credit rating agencies. Credit rating agencies may collude to assign inflated ratings. Yet we show that there exists an approval scheme which induces credit rating agencies to assign correct ratings.
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Volume (Year): 33 (2009) Issue (Month): 7 (July) Pages: 1266-1273 Download reference. The following formats are available: HTML
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Patrick Bolton & Xavier Freixas & Joel Shapiro, 2009.
"The Credit Ratings Game,"
Economics Working Papers
1149, Department of Economics and Business, Universitat Pompeu Fabra.
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Patrick Bolton & Xavier Freixas & Joel Shapiro, 2009.
"The Credit Ratings Game,"
NBER Working Papers
14712, National Bureau of Economic Research, Inc.
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