Optimal Debt Contracts in Emerging Markets with Multiple Investors
This paper extends the costly enforcement model of optimal financing to the case of investment projects financed by several lenders when the legal and economic situation in the emerging market economy does not allow for commitment to contracts and for securitization of credit contracts through use of collateral. We consider the asymmetric situation when only one lender is a big strategic investor. All other lenders are small passive investors. We first provide the sufficient and necessary condition for renegotiation proofness. Then we show that the optimal verification is deterministic. We also discuss the conditions under which the optimal contract is a debt contract. Our methodological framework may be used for example for the analysis of credit provision in food supply chains, where often many small non-strategic investors (small farm-level producers) interact with some big strategic investor (the advanced technology supplier) in the explicit or implicit crediting of some parts of food supply chain like the food processing plants or storage facilities.
Volume (Year): 2007 (2007)
Issue (Month): 2 ()
|Contact details of provider:|| Postal: nam. W. Churchilla 4, 130 67 Praha 3|
Phone: (02) 24 09 51 11
Fax: (02) 24 22 06 57
Web page: http://www.vse.cz/
More information through EDIRC
|Order Information:|| Postal: Editorial office Prague Economic Papers, University of Economics, nám. W. Churchilla 4, 130 67 Praha 3, Czech Republic|
Web: http://www.vse.cz/pep/ Email:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- M. Martin Boyer, 2001. "Project Financing when the Principal Cannot Commit," CIRANO Working Papers 2001s-29, CIRANO.
- Brunner, Antje & Krahnen, Jan Pieter, 2006.
"Multiple lenders and corporate distress: Evidence on debt restructuring,"
CFS Working Paper Series
2001/04, Center for Financial Studies (CFS).
- Brunner, Antje & Krahnen, Jan Pieter, 2004. "Multiple Lenders and Corporate Distress: Evidence on Debt Restructuring," CEPR Discussion Papers 4287, C.E.P.R. Discussion Papers.
- Stephen D. Williamson, 1984.
"Costly Monitoring, Financial Intermediation, and Equilibrium Credit Rationing,"
583, Queen's University, Department of Economics.
- Williamson, Stephen D., 1986. "Costly monitoring, financial intermediation, and equilibrium credit rationing," Journal of Monetary Economics, Elsevier, vol. 18(2), pages 159-179, September.
- Stephen D. Williamson, 1984.
"Costly Monitoring, Loan Contracts and Equilibrium Credit Rationing,"
572, Queen's University, Department of Economics.
- Stephen D. Williamson, 1987. "Costly Monitoring, Loan Contracts, and Equilibrium Credit Rationing," The Quarterly Journal of Economics, Oxford University Press, vol. 102(1), pages 135-145.
- Annamaria Menichini & Peter Simmons, 2001. "Are two investors better than one?," CSEF Working Papers 71, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
- Jeremy Berkowitz & Michelle J. White, 2004. "Bankruptcy and Small Firms' Access to Credit," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 69-84, Spring.
- Chongwoo Choe, 1995.
"Contract Design and Costly Verification Games,"
1995.18, School of Economics, La Trobe University.
- Tridib Sharma, 2003. "Optimal Contracts when Enforcement is a Decision Variable: A Comment," Econometrica, Econometric Society, vol. 71(1), pages 387-390, January.
- Stefan Krasa & Anne P. Villamil, 2000. "Optimal Contracts when Enforcement Is a Decision Variable," Econometrica, Econometric Society, vol. 68(1), pages 119-134, January.
- Claessens, Stijn & Klapper, Leora F., 2002.
"Bankruptcy around the world - explanations of its relative use,"
Policy Research Working Paper Series
2865, The World Bank.
- Stijn Claessens & Leora F. Klapper, 2005. "Bankruptcy around the World: Explanations of Its Relative Use," American Law and Economics Review, Oxford University Press, vol. 7(1), pages 253-283.
- Claessens, Stijn & Klapper, Leora F., 2002. "Bankruptcy around the World: Explanations of its Relative Use," CEI Working Paper Series 2002-17, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
- Bester, Helmut & Strausz, Roland, 2001. "Contracting with Imperfect Commitment and the Revelation Principle: The Single Agent Case," Econometrica, Econometric Society, vol. 69(4), pages 1077-98, July.
- Stefan Krasa & Anne P. Villamil, 2003. "Optimal Contracts when Enforcement is a Decision Variable: A Reply," Econometrica, Econometric Society, vol. 71(1), pages 391-393, January.
- Ondøej Knot & Ondøej Vychodil, 2005. "What Drives the Optimal Bankruptcy Law Design? (in English)," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 55(3-4), pages 110-123, March.
- Khalil, Fahad & Parigi, Bruno M, 1998. "Loan Size as a Commitment Device," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(1), pages 135-50, February.
- Stefan Krasa & Tridib Sharma & Anne Villamil, 2008. "Bankruptcy and firm finance," Economic Theory, Springer, vol. 36(2), pages 239-266, August.
- Townsend, Robert M., 1979.
"Optimal contracts and competitive markets with costly state verification,"
Journal of Economic Theory,
Elsevier, vol. 21(2), pages 265-293, October.
- Robert M. Townsend, 1979. "Optimal contracts and competitive markets with costly state verification," Staff Report 45, Federal Reserve Bank of Minneapolis.
- Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
- Allan C. Eberhart & Lawrence A. Weiss, 1998. "The Importance of Deviations from the Absolute Priority Rule in Chapter 11 Bankruptcy Proceedings," Financial Management, Financial Management Association, vol. 27(4), Winter.
- Douglas Gale & Martin Hellwig, 1985. "Incentive-Compatible Debt Contracts: The One-Period Problem," Review of Economic Studies, Oxford University Press, vol. 52(4), pages 647-663.
When requesting a correction, please mention this item's handle: RePEc:prg:jnlpep:v:2007:y:2007:i:2:id:301:p:115-129. 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: (Frantisek Sokolovsky)
If references are entirely missing, you can add them using this form.