Collateral and competition
AbstractThe authors examine the effects of changes in competitive conditions on the structure of loan contracts. In particular, they present conditions in which greater loan market competition reduces the stringency of contractual collateral requirements, a prediction that is consistent with anecdotal evidence from loan markets. The authors also analyze the interaction between the degree of competition and the efficiency of contractual renegotiation. Insufficiently competitive markets may lead to bargaining difficulties that reduce the efficiency of renegotiable contracts. At low levels of competition negotiable contracts remain feasible only if collateral levels are inefficiently low.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 02-22.
Date of creation: 2002
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-03-03 (All new papers)
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