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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References listed on IDEAS
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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.
- Columba, Francesco & Gambacorta, Leonardo & Mistrulli, Paolo Emilio, 2010. "Mutual guarantee institutions and small business finance," Journal of Financial Stability, Elsevier, vol. 6(1), pages 45-54, April.
- Francesco Columba & Leonardo Gambacorta & Paolo Emilio Mistrulli, 2009. "Mutual guarantee institutions and small business finance," Temi di discussione (Economic working papers) 735, Bank of Italy, Economic Research and International Relations Area.
- Columba, F. & Gambacorta, L. & Mistrulli, P.E., 2009. "Mutual Guarantee Institutions and Small Business Finance," Discussion Paper 2009-32 S, Tilburg University, Center for Economic Research.
- Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
- Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
- Francesca Bartoli & Giovanni Ferri & Pierluigi Murro & Zeno Rotondi, 2011. "Bank-firm relations and the role of Mutual Guarantee Institutions during the crisis," SERIES 0034, Dipartimento di Scienze economiche e metodi matematici - Università di Bari, revised Jan 2011.
- 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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