Loan Size as a Commitment Device
The authors model risky lending with costly state verification but without commitment to an audit strategy. The borrower underreports with a positive probability in the successful state and the lender audits with a positive probability after a report of failure. Under lack of commitment to audit probabilities, an increase in loan size convinces the borrower that the lender has a high stake in an audit. This reduces the probability of underreporting and leads to overinvestment relative to the commitment case. However, there is underinvestment relative to the level under full information. Copyright 1998 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Volume (Year): 39 (1998)
Issue (Month): 1 (February)
|Contact details of provider:|| Postal: |
Phone: (215) 898-8487
Fax: (215) 573-2057
Web page: http://www.econ.upenn.edu/ierEmail:
More information through EDIRC
|Order Information:|| Web: http://www.blackwellpublishing.com/subs.asp?ref=0020-6598 Email: |
When requesting a correction, please mention this item's handle: RePEc:ier:iecrev:v:39:y:1998:i:1:p:135-50. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or ()
If references are entirely missing, you can add them using this form.