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Why is there debt?

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  • Jeffrey M. Lacker

Abstract

Most loan repayment agreements are largely noncontingent, and yet standard economic theory predicts that they should be highly contingent. An explanation is offered that relies on imperfect information and collateral. The theory suggests that perhaps all debt contracts are implicitly collateralized.

Suggested Citation

  • Jeffrey M. Lacker, 1991. "Why is there debt?," Economic Review, Federal Reserve Bank of Richmond, vol. 77(Jul), pages 3-19.
    • Handle: RePEc:fip:fedrer:y:1991:i:jul:p:3-19:n:v.77no.4
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    References listed on IDEAS

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    1. Lacker, Jeffrey M & Weinberg, John A, 1989. "Optimal Contracts under Costly State Falsification," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1345-1363, December.
    2. Jeffrey Lacker, 2001. "Collateralized Debt as the Optimal Contract," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(4), pages 842-859, October.
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    13. repec:bla:ecorec:v:64:y:1988:i:187:p:307-22 is not listed on IDEAS
    14. William G. Gale, 1990. "Collateral, Rationing, and Government Intervention in Credit Markets," NBER Chapters, in: Asymmetric Information, Corporate Finance, and Investment, pages 43-62, National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Jain, Neelam, 2001. "Monitoring costs and trade credit," The Quarterly Review of Economics and Finance, Elsevier, vol. 41(1), pages 89-110.
    2. Jeffrey M. Lacker, 1994. "Does adverse selection justify government intervention in loan markets?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 61-95.
    3. Catherine Refait, 2005. "Soutien financier ou mise en faillite de l'entreprise? Comprendre la décision de la banque," Revue Finance Contrôle Stratégie, revues.org, vol. 8(1), pages 131-157, March.
    4. Douglas W. Diamond, 1996. "Financial intermediation as delegated monitoring: a simple example," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 51-66.
    5. Jean-Daniel Guigou & Laurent Vilanova, 1999. "Les vertus du financement bancaire: fondements et limites," Revue Finance Contrôle Stratégie, revues.org, vol. 2(2), pages 97-133, June.
    6. Arbel, Yonathan A., 2016. "Shielding of assets and lending contracts," International Review of Law and Economics, Elsevier, vol. 48(C), pages 26-35.

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