Optimum pricing of mutual guarantees for credit
The main finding of this paper is that under financial market impediments and asymmetric information, a mutually guaranteed and correctly schemed and priced insurance credit contract should have an abnormal actuarial profit. Such a contract improves welfare by simultaneously eliminating underinvestment (UI) and overinvestment (OI) and by reducing the probability of the insurer’s ruin. This solution is relevant for mutual credit insurance agencies and international or governmental agencies interested in increasing the value creation of small and medium enterprises that suffer from limited access to equity and debt markets. Copyright Springer Science+Business Media, LLC. 2013
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Volume (Year): 41 (2013)
Issue (Month): 1 (June)
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- Francesco Columba & Leonardo Gambacorta & Paolo Emilio Mistrulli, 2009. "Mutual guarantee institutions and small business finance," BIS Working Papers 290, Bank for International Settlements.
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- Yoram Kroll & Assaf Cohen, 2000. "Alternative Solutions to Underinvestment, Under Equity and Credit Rationing," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 27(3-4), pages 395-421.
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