Memory in Contracts: The Experience of the EBRD (1991-2003)
AbstractThe objective of this paper is to identify the role of memory in repeated contracts with moral hazard in financial intermediation. We use the database we have built containing the contracts signed by the European Bank for Reconstruction and Development EBRD between 1991 and 2003. Our framework is a standard setting of repeated moral hazard. After having controlled for the adverse selection component, we are able to prove that client reputation is the discrimination device according to which the bank fixes the amount of credit for the established clients. Our results unambiguously isolate the effect of memory in the bank's lending decisions.
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Bibliographic InfoPaper provided by Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) in its series UFAE and IAE Working Papers with number 724.08.
Date of creation: 01 Feb 2008
Date of revision:
Financial Contracts; Incentives; Investment; Memory; Moral Hazard.;
Other versions of this item:
- Lionel Artige & Rosella Nicolini, 2008. "Memory in Contracts: The experience of the EBRD (1991-2003)," CREPP Working Papers 0803, Centre de Recherche en Economie Publique et de la Population (CREPP) (Research Center on Public and Population Economics) HEC-Management School, University of Liège.
- Lionel Artige & Rosella Nicolini, 2010. "Memory in Contracts: The Experience of the EBRD (1991-2003)," Working Papers wpdea1002, Department of Applied Economics at Universitat Autonoma of Barcelona.
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- P21 - Economic Systems - - Socialist Systems and Transition Economies - - - Planning, Coordination, and Reform
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-02-16 (All new papers)
- NEP-BEC-2008-02-16 (Business Economics)
- NEP-CTA-2008-02-16 (Contract Theory & Applications)
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