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“Managing Banks’ Optimal Debt Contracts under Costly Enforcement”

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Author Info
Celli, Gian Luca
Abstract

The proposed research model from “Optimal Debt Contracts under Costly Enforcement” alters the original Costly State Verification (CSV) model introduced by Townsend (1979) by assuming that monitoring is non-contractible and non-deterministic. It emerges, from my analysis, that there are technical problems with the entrepreneur participation constraint. Particularly, the authors did not frame the principal optimization problem taking in to account a type-dependent participation constraint. To correct for this errors, I developed an adverse selection model that integrates the agent out-side opportunity utility. This approach opens up in to an interesting research turf on hypothetical creditors and debt market segmentation.

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File URL: http://mpra.ub.uni-muenchen.de/14545/
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File URL: http://mpra.ub.uni-muenchen.de/14632/
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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 14545.

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Date of creation: 28 May 2008
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Handle: RePEc:pra:mprapa:14545

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Related research
Keywords: Debt Tiers; Agency Costs; Debt Management; Debt Contract; Costly Enforcement; Adverse Selection Models; Investor Heterogeneity;

Find related papers by JEL classification:
D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

This paper has been announced in the following NEP Reports:

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. Winton, Andrew, 1995. "Costly State Verification and Multiple Investors: The Role of Seniority," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 8(1), pages 91-123. [Downloadable!] (restricted)
  2. Oliver Hart & John Moore, 1997. "Default and Renegotiation: A Dynamic Model of Debt," Harvard Institute of Economic Research Working Papers 1792, Harvard - Institute of Economic Research.
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