Debt Contracts with ex-ante and ex-post Asymmetric Information: An Example
We consider a simple model of lending and borrowing combining two informational problems: adverse selection and costly state verification. Our analysis highlights the interaction between these two informational problems. We notably show that the higher the monitoring cost, the less discriminating the optimal menu of contracts is.
|Date of creation:||2005|
|Date of revision:|
|Contact details of provider:|| Postal: Adelaide SA 5005|
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Web page: http://www.economics.adelaide.edu.au/
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- Townsend, Robert M., 1979.
"Optimal contracts and competitive markets with costly state verification,"
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Springer, vol. 3(3), pages 427-51, July.
- Boyd, J.h. & Smith, B.D., 1991. "The Equilibrium Allocation of Investment Capital in the Presence of Adverse Selection and Costly State Verification," RCER Working Papers 289, University of Rochester - Center for Economic Research (RCER).
- Guillaume Carlier & Ludovic Renou, 2005. "A costly state verification model with diversity of opinions," Economic Theory, Springer, vol. 25(2), pages 497-504, 02.
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