IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Counterparty Risk in Financial Contracts: Should the Insured Worry about the Insurer?

  • James R. Thompson

    (School of Accounting and Finance, University of Waterloo.)

We analyze the effect of counterparty risk on financial insurance contracts, using the case of credit risk transfer in banking. This paper posits a new moral hazard problem on the insurer side of the market, which causes the insured party to be exposed to excessive counterparty risk. We find that this counterparty risk can create an incentive for the insured party to reveal superior information about the likelihood of a claim. In particular, a unique separating equilibrium may exist, even in the absence of any costly signaling device. (c) 2010 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology..

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.mitpressjournals.org/doi/pdfplus/10.1162/qjec.2010.125.3.1195
File Function: link to full text
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by MIT Press in its journal Quarterly Journal of Economics.

Volume (Year): 125 (2010)
Issue (Month): 3 (August)
Pages: 1195-1252

as
in new window

Handle: RePEc:tpr:qjecon:v:125:y:2010:i:3:p:1195-1252
Contact details of provider: Web page: http://mitpress.mit.edu/journals/

Order Information: Web: http://mitpress.mit.edu/journal-home.tcl?issn=00335533

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:tpr:qjecon:v:125:y:2010:i:3:p:1195-1252. 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: (Anna Pollock-Nelson)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.