Optimum pricing of mutual guarantees for credit
AbstractThe main finding of this paper is that under financial market impediments and asymmetric information, a mutually guaranteed and correctly schemed and priced insurance credit contract should have an abnormal actuarial profit. Such a contract improves welfare by simultaneously eliminating underinvestment (UI) and overinvestment (OI) and by reducing the probability of the insurer’s ruin. This solution is relevant for mutual credit insurance agencies and international or governmental agencies interested in increasing the value creation of small and medium enterprises that suffer from limited access to equity and debt markets. Copyright Springer Science+Business Media, LLC. 2013
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Bibliographic InfoArticle provided by Springer in its journal Small Business Economics.
Volume (Year): 41 (2013)
Issue (Month): 1 (June)
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Web page: http://www.springerlink.com/link.asp?id=100338
Credit insurance; Mutual guarantees; Moral hazard; Asymmetric information; SME; Underinvestment (UI); Overinvestment (OI); G21; G22; G32; L26;
Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
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