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Optimal Debt Contracts in Emerging Markets with Multiple Investors

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  • Karel Janda

Abstract

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.

Suggested Citation

  • Karel Janda, 2007. "Optimal Debt Contracts in Emerging Markets with Multiple Investors," Prague Economic Papers, University of Economics, Prague, vol. 2007(2), pages 115-129.
  • Handle: RePEc:prg:jnlpep:v:2007:y:2007:i:2:id:301:p:115-129
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    References listed on IDEAS

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    8. M. Martin Boyer, 2001. "Project Financing when the Principal Cannot Commit," CIRANO Working Papers 2001s-29, CIRANO.
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    Citations

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    Cited by:

    1. Karel Janda & Jakub Rojcek, 2012. "Bankruptcy Triggering Asset Value - Continuous Time Finance Approach," ANU Working Papers in Economics and Econometrics 2012-581, Australian National University, College of Business and Economics, School of Economics.
    2. Karel Janda, 2009. "Bankruptcies With Soft Budget Constraint," Manchester School, University of Manchester, vol. 77(4), pages 430-460, July.
    3. Karel Janda & Eva Michalíková & Věra Potácelová, 2010. "Gravitační a fiskální modely státní podpory exportních úvěrů v České republice
      [Gravity and Fiscal Models of Government Support of Export Credit in the Czech Republic]
      ," Politická ekonomie, University of Economics, Prague, vol. 2010(3), pages 305-325.
    4. Martin Dòzsa & Karel Janda, 2015. "Corporate asset pricing models and debt contracts," CAMA Working Papers 2015-33, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

    More about this item

    Keywords

    emerging markets; debt; Multiple Lenders; Supply Chains;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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