Competitive Equilibrium with Type Convergence in an Asymmetrically Informed Market
Abstract
This article studies an asymmetric information game with "type convergence," in which, under some realizations of a common uncertainity, inducing informed agents to reveal their types through self-selection by contract choice is either costly or impossible. Under other realizations, self-selection permits costless distinctions between informed agents. I obtain sufficient conditions under which contracting with options prior to the realization of the common uncertainity leads to the existence of a perfectly separating, costless Nash equilibrium. Applications to variable rate loan commitments and life insurance contracting are discussed. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.Download Info
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Bibliographic Info
Article provided by Society for Financial Studies in its journal Review of Financial Studies.
Volume (Year): 2 (1989)
Issue (Month): 1 ()
Pages: 49-71
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Houston, Joel F. & Venkataraman, S., 1996. "Liquidation under moral hazard: Optimal debt maturity and loan commitments," Journal of Banking & Finance, Elsevier, vol. 20(1), pages 115-133, January.
- Stanhouse, Bryan & Schwarzkopf, Al & Ingram, Matt, 2011. "A computational approach to pricing a bank credit line," Journal of Banking & Finance, Elsevier, vol. 35(6), pages 1341-1351, June.
- Chateau, J.-P. & Wu, J., 2007. "Basel-2 capital adequacy: Computing the `fair' capital charge for loan commitment `true' credit risk," International Review of Financial Analysis, Elsevier, vol. 16(1), pages 1-21.
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