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Why is there debt?

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Author Info

  • Jeffrey M. Lacker

Abstract

Most loan repayment agreements are largely noncontingent, and yet standard economic theory predicts that they should be highly contingent. An explanation is offered that relies on imperfect information and collateral. The theory suggests that perhaps all debt contracts are implicitly collateralized.

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File URL: http://www.richmondfed.org/publications/research/economic_review/1991/pdf/er770401.pdf
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Bibliographic Info

Article provided by Federal Reserve Bank of Richmond in its journal Economic Review.

Volume (Year): (1991)
Issue (Month): Jul ()
Pages: 3-19

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Handle: RePEc:fip:fedrer:y:1991:i:jul:p:3-19:n:v.77no.4

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Related research

Keywords: Debt;

References

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  1. William G. Gale, 1989. "Collateral, Rationing, and Government Intervention in Credit Markets," UCLA Economics Working Papers 554, UCLA Department of Economics.
  2. Huberman, Gur & Kahn, Charles M., 1988. "Strategic renegotiation," Economics Letters, Elsevier, vol. 28(2), pages 117-121.
  3. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 393-414, July.
  4. Jeffrey M. Lacker, 1998. "Collateralized debt as the optimal contract," Working Paper 98-04, Federal Reserve Bank of Richmond.
  5. Townsend, Robert M., 1979. "Optimal contracts and competitive markets with costly state verification," Journal of Economic Theory, Elsevier, vol. 21(2), pages 265-293, October.
  6. Spence, Michael & Zeckhauser, Richard, 1971. "Insurance, Information, and Individual Action," American Economic Review, American Economic Association, vol. 61(2), pages 380-87, May.
  7. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  8. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
  9. Myerson, Roger B, 1979. "Incentive Compatibility and the Bargaining Problem," Econometrica, Econometric Society, vol. 47(1), pages 61-73, January.
  10. Innes, Robert D., 1990. "Limited liability and incentive contracting with ex-ante action choices," Journal of Economic Theory, Elsevier, vol. 52(1), pages 45-67, October.
  11. Joseph E. Stiglitz, 1990. "Money, Credit, and Business Fluctuations," NBER Working Papers 2823, National Bureau of Economic Research, Inc.
  12. Lacker, J.M., 1989. "Optimal Contracts Under Costly State Falsification," Purdue University Economics Working Papers 956, Purdue University, Department of Economics.
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Citations

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Cited by:
  1. Jeffrey M. Lacker, 1994. "Does adverse selection justify government intervention in loan markets?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 61-95.
  2. Jain, Neelam, 2001. "Monitoring costs and trade credit," The Quarterly Review of Economics and Finance, Elsevier, vol. 41(1), pages 89-110.
  3. Douglas W. Diamond, 1996. "Financial intermediation as delegated monitoring: a simple example," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 51-66.
  4. Catherine Refait, 2005. "Soutien financier ou mise en faillite de l'entreprise? Comprendre la décision de la banque," Revue Finance Contrôle Stratégie, revues.org, vol. 8(1), pages 131-157, March.

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