Collateral and Competitive Equilibria with Moral Hazard and Private Information
AbstractThe authors examine equilibrium credit contracts and allocations under different competitivity specifications and explain the economic roles of collateral under these specifications. Both moral hazard and adverse selection are considered. The principal message is that how a competitive equilibrium is conceptualized significantly affects the characterization of equilibrium credit contracts. Specifically, some well-known results in the rationing literature are shown to rest delicately on the adopted equilibrium concept. Two somewhat surprising results emerge. First, high-quality borrowers with unlimited collateral may be priced out of the market despite the bank having idle deposits. Second, high-quality borrowers may put up more collateral.
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Bibliographic InfoPaper provided by EconWPA in its series Finance with number 0411019.
Length: 20 pages
Date of creation: 10 Nov 2004
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Other versions of this item:
- Chan, Yuk-Shee & Thakor, Anjan V, 1987. " Collateral and Competitive Equilibria with Moral Hazard and Private Information," Journal of Finance, American Finance Association, vol. 42(2), pages 345-63, June.
- G - Financial Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-11-22 (All new papers)
- NEP-CFN-2004-11-22 (Corporate Finance)
- NEP-FIN-2004-11-22 (Finance)
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