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Collateralized Debt as the Optimal Contract Author info | Abstract | Publisher info | Download info | Related research | Statistics Jeffrey Lacker (Federal Reserve Bank of Richmond)
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In a multiple-good risk-sharing environment with ex post private information, conditions are found under which collateralized debt is the optimal contract. The necessary and sufficient condition is that the borrower values the collateral good more highly than does the lender; otherwise the optimal contract does not resemble debt. Limited collateral can give rise to an endogenous borrowing constraint, driving a further wedge between the intertemporal marginal rates of substitution of the borrower and the lender. (Copyright: Elsevier)
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics .
Volume (Year): 4 (2001)
Issue (Month): 4 (October)
Pages: 842-859
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Handle: RePEc:red:issued:v:4:y:2001:i:4:p:842-859Contact details of provider: Postal: Review of Economic Dynamics Academic Press Editorial Office 525 "B" Street, Suite 1900 San Diego, CA 92101 Fax: 1-860-486-4463 Email: Web page: http://www.EconomicDynamics.org/review.htm More information through EDIRC
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Keywords: debt ; financial contracts ; optimal contracts ; collateral ; asymmetric information ; borrowing constraints ; Other versions of this item:
Find related papers by JEL classification: D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
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