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Multiple Lending and Constrained Efficiency in the Credit Market

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  • Andrea, ATTAR
  • Eloisa, CAMPIONI
  • Gwenaël, PIASER

Abstract

In this paper we present a model of credit market with several homogeneous lenders competing to finance an investment project. Contracts are non-exclusive, hence the borrower can accept whatever subset of the offered loans. We use the model to discuss efficiency issues in competitive economies with asymmetric information and non-exclusive agreements. We characterize the equilibria of this common agency game with moral hazard and show that they all belong to the constrained Pareto frontier

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Bibliographic Info

Paper provided by Université catholique de Louvain, Département des Sciences Economiques in its series Discussion Papers (ECON - Département des Sciences Economiques) with number 2005024.

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Length: 21
Date of creation: 01 Mar 2005
Date of revision:
Handle: RePEc:ctl:louvec:2005024

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Keywords: Common Agency; Moral Hazard; Parto Efficiency; Second Best;

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References

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  1. Repullo,R. & Suarez,J., 1996. "Entrepreneurial Moral Hazard and Bank Monitoring: A Model of the Credit Channel," Papers 9604, Centro de Estudios Monetarios Y Financieros-.
  2. Martimort David & Stole Lars, 2003. "Contractual Externalities and Common Agency Equilibria," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 3(1), pages 1-40, July.
  3. Bizer, David S & DeMarzo, Peter M, 1992. "Sequential Banking," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 41-61, February.
  4. Bernheim, B Douglas & Whinston, Michael D, 1998. "Incomplete Contracts and Strategic Ambiguity," American Economic Review, American Economic Association, vol. 88(4), pages 902-32, September.
  5. Ilya Segal & Michael D. Whinston, 2003. "Robust Predictions for Bilateral Contracting with Externalities," Econometrica, Econometric Society, vol. 71(3), pages 757-791, 05.
  6. Peters, Michael, 2001. "Common Agency and the Revelation Principle," Econometrica, Econometric Society, vol. 69(5), pages 1349-72, September.
  7. Alberto Bisin & Danilo Guaitoli, 1998. "Moral hazard and non-exclusive contracts," Economics Working Papers 345, Department of Economics and Business, Universitat Pompeu Fabra.
  8. Xavier Freixas & Jean-Charles Rochet, 1997. "Microeconomics of Banking," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061937, January.
  9. Christine A. Parlour & Uday Rajan, 2001. "Competition in Loan Contracts," American Economic Review, American Economic Association, vol. 91(5), pages 1311-1328, December.
  10. David Martimort & Lars Stole, 2001. "The Revelation and Delegation Principles in Common Agency Games," CESifo Working Paper Series 575, CESifo Group Munich.
  11. Bengt Holmstrom & Jean Tirole, 1994. "Financial Intermediation, Loanable Funds and the Real Sector," Working papers 95-1, Massachusetts Institute of Technology (MIT), Department of Economics.
  12. Michael Peters, 2000. "Negotiation and Take it or Leave it in Common Agency," Working Papers peters-00-02, University of Toronto, Department of Economics.
  13. Alberto Bisin & Piero Gottardi, 1998. "Competitive Equilibria with Asymmetric Information," Levine's Working Paper Archive 2062, David K. Levine.
  14. Mitchell A. Petersen & Raghuram G. Rajan, 1994. "The Effect of Credit Market Competition on Lending Relationships," NBER Working Papers 4921, National Bureau of Economic Research, Inc.
  15. Besanko, David & Kanatas, George, 1993. "Credit Market Equilibrium with Bank Monitoring and Moral Hazard," Review of Financial Studies, Society for Financial Studies, vol. 6(1), pages 213-32.
  16. Enrica Detragiache & Paolo Garella & Luigi Guiso, 2000. "Multiple versus Single Banking Relationships: Theory and Evidence," Journal of Finance, American Finance Association, vol. 55(3), pages 1133-1161, 06.
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Citations

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Cited by:
  1. Degryse, Hans & Ioannidou , Vasso & von Schedvin, Erik, 2012. "On the Non-Exclusivity of Loan Contracts: An Empirical Investigation," Working Paper Series 258, Sveriges Riksbank (Central Bank of Sweden).
  2. Andrea Attar & Nicolas Porteiro & Gwenaël Piaser, 2006. "A note on Common Agency models of moral hazard," Working Papers 2006_36, Department of Economics, University of Venice "Ca' Foscari".
  3. Alberto Bennardo & Marco Pagano & Salvatore Piccolo, 2008. "Multiple-Bank Lending, Creditor Rights and Information Sharing," CSEF Working Papers 211, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 28 Jul 2010.
  4. ATTAR, Andrea & MAJUMDAR, Dipjyoti & PIASER, Gwenaêl & PORTEIRO, Nicolàs, 2003. "Common agency games with separable preferences," CORE Discussion Papers 2003102, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Attar, Andrea & Chassagnon, Arnold, 2009. "On moral hazard and nonexclusive contracts," Journal of Mathematical Economics, Elsevier, vol. 45(9-10), pages 511-525, September.
  6. Attar, Andrea & Majumdar, Dipjyoti & Piaser, Gwenaël & Porteiro, Nicolás, 2008. "Common agency games: Indifference and separable preferences," Mathematical Social Sciences, Elsevier, vol. 56(1), pages 75-95, July.
  7. Agar Brugiavini & Gwenaël Piaser, 2006. "Nonexclusivity and adverse selection: An application to the annuity market," LSF Research Working Paper Series 06-03, Luxembourg School of Finance, University of Luxembourg.
  8. Chassagnon, Arnold & Attar, Andrea, 2008. "On moral hazard and nonexclusive contracts," Economics Papers from University Paris Dauphine 123456789/4717, Paris Dauphine University.

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