symposium articles: Risk aversion and incentive compatibility with ex post information asymmetry
AbstractThe paper extends Diamond's (1984) analysis of financial contracting with information asymmetry ex post and endogenous "bankruptcy penalties" to allow for risk aversion of the borrower. The optimality of debt contracts, which Diamond obtained for the case of risk neutrality, is shown to be nonrobust to the introduction of risk aversion. This contrasts with the costly state verification literature, in which debt contracts are optimal for risk averse as well as risk neutral borrowers.
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Bibliographic InfoArticle provided by Springer in its journal Economic Theory.
Volume (Year): 18 (2001)
Issue (Month): 2 ()
Note: Received: December 7, 1998; revised version: June 9, 1999
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Web page: http://link.springer.de/link/service/journals/00199/index.htm
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
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- Morrison, Alan D. & White, Lucy, 2011. "Deposit insurance and subsidized recapitalizations," Journal of Banking & Finance, Elsevier, vol. 35(12), pages 3400-3416.
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