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The Financing and Redeployment of Specific Assets

  • Michel A. Habib

    (London Business School,)

  • D. Bruce Johnsen

    (George Mason University School of Law)

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    We model the role various forms of nonrecourse secured debt play in efficiently redeploying assets whose value is state-specific. Ex ante, an entrepreneur and an asset redeployer make noncontractible state-specific investments in the primary and next-best uses of an asset, respectively. The redeployer provides a secured nonrecourse loan equal to the value of the asset in the critical state that separates the good and bad states. In the event of a bad state, this contract averts ex post bargaining over the asset's quasi-rents on redeployment and leaves the parties' ex ante investments undistorted. Copyright The American Finance Association 1999.

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    Article provided by American Finance Association in its journal The Journal of Finance.

    Volume (Year): 54 (1999)
    Issue (Month): 2 (04)
    Pages: 693-720

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    Handle: RePEc:bla:jfinan:v:54:y:1999:i:2:p:693-720
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