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Optimal Deterministic Debt Contracts

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Author Info
Karel Janda () (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic, University of Economics, Department of Banking and Insurance, Prague, Czech Republic)

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Abstract

This paper extends the costly enforcement model of optimal financing to the case of investment projects financed by several lenders. We consider the asymmetric situation when only one lender is a big strategic investor. All other lender are small passive investors. We first provide the sufficient and necessary condition for renegotiation proofness. Then we show that the optima verification is deterministic. We also discuss the conditions under which the optimal contract is a debt contract.

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Publisher Info
Paper provided by Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies in its series Working Papers IES with number 2006/25.

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Length: 25 pages
Date of creation: Oct 2006
Date of revision: Oct 2006
Handle: RePEc:fau:wpaper:wp2006_25

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Related research
Keywords: Costly State Verification; Multiple Lenders; Debt;

Other versions of this item:

Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Stefan Krasa & Anne P. Villamil, 2003. "Optimal Contracts when Enforcement is a Decision Variable: A Reply," Econometrica, Econometric Society, vol. 71(1), pages 391-393, January. [Downloadable!] (restricted)
  2. Allan C. Eberhart & Lawrence A. Weiss, 1998. "The Importance of Deviations from the Absolute Priority Rule in Chapter 11 Bankruptcy Proceedings," Financial Management, Financial Management Association, vol. 27(4), Winter.
  3. Choe, Chongwoo, 1998. "Contract design and costly verification games," Journal of Economic Behavior & Organization, Elsevier, vol. 34(2), pages 327-340, February. [Downloadable!] (restricted)
    Other versions:
  4. Robert Townsend, 1979. "Optimal contracts and competitive markets with costly state verification," Staff Report 45, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  5. Jeremy Berkowitz & Michelle J. White, 2004. "Bankruptcy and Small Firms' Access to Credit," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 69-84, Spring.
  6. Gale, Douglas & Hellwig, Martin, 1985. "Incentive-Compatible Debt Contracts: The One-Period Problem," Review of Economic Studies, Blackwell Publishing, vol. 52(4), pages 647-63, October. [Downloadable!] (restricted)
  7. Khalil, Fahad & Parigi, Bruno M, 1998. "Loan Size as a Commitment Device," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(1), pages 135-50, February.
  8. Rajan, Raghuram & Winton, Andrew, 1995. " Covenants and Collateral as Incentives to Monitor," Journal of Finance, American Finance Association, vol. 50(4), pages 1113-46, September. [Downloadable!] (restricted)
  9. Stijn Claessens & Leora F. Klapper, 2005. "Bankruptcy around the World: Explanations of Its Relative Use," American Law and Economics Review, Oxford University Press, vol. 7(1), pages 253-283. [Downloadable!] (restricted)
    Other versions:
  10. Stefan Krasa & Tridib Sharma & Anne Villamil, 2008. "Bankruptcy and firm finance," Economic Theory, Springer, vol. 36(2), pages 239-266, August. [Downloadable!] (restricted)
  11. Bester, Helmut & Strausz, Roland, 2001. "Contracting with Imperfect Commitment and the Revelation Principle: The Single Agent Case," Econometrica, Econometric Society, vol. 69(4), pages 1077-98, July.
  12. Ondøej Vychodil & Ondøej Knot, 2004. "What Drives the Optimal Bankruptcy Law Design?," Working Papers IES 62, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised 2004. [Downloadable!]
  13. Annamaria Menichini & Peter Simmons, 2001. "Are two investors better than one?," CSEF Working Papers 71, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
  14. Stefan Krasa & Anne P. Villamil, 2000. "Optimal Contracts when Enforcement Is a Decision Variable," Econometrica, Econometric Society, vol. 68(1), pages 119-134, January.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Petr Kadeřábek, 2006. "Correcting Predictive ModelCorrecting Models of Chaotic Reality," Working Papers IES 2006/31, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Dec 2006. [Downloadable!]
  2. Jan Ámos Víšek, 2007. "The Instrumental Weighted Variables. Part II. Square root of n-consistency," Working Papers IES 2007/06, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jan 2007. [Downloadable!]
  3. Miloslav Vošvrda & Jan Kodera, 2007. "Goodwin's Predator-Prey Model with Endogenous Technological Progress," Working Papers IES 2007/09, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jan 2007. [Downloadable!]
  4. Jan Ámos Víšek, 2007. "The Instrumental Weighted Variables. Part I. Consistency," Working Papers IES 2007/05, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jan 2007. [Downloadable!]
  5. František Turnovec, 2006. "Publication Portfolio of the Czech Economists and Problems of Rankings," Working Papers IES 2006/30, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Dec 2006. [Downloadable!]
  6. Natálie Reichlová & Petr Švarc, 2006. "Strategic Referring in Labor Market Social Networks," Working Papers IES 2006/29, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Dec 2006. [Downloadable!]
  7. Jan Ámos Víšek, 2007. "The Instrumental Weighted Variables. Part III. Asymptotic Representation," Working Papers IES 2007/07, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jan 2007. [Downloadable!]
  8. Karel Janda, 2007. "Instituce státní úvěrové podpory v České republice [available in Czech only]," Working Papers IES 2007/20, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jun 2007. [Downloadable!]
  9. Adam Geršl, 2007. "Foreign Banks, Foreign Lending and Cross-Border Contagion: Evidence from the BIS Data," Working Papers IES 2007/08, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jan 2007. [Downloadable!]
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