Asymmetric Information, Bank Lending and Implicit Contracts : The Winner's Curse
The purpose of this note is to point out an error in a widely cited paper by Sharpe (1990) on long-term bank-firm relationships and to provide a correct analysis of the problem. The model studies repeated lending under asymmetric information which leads to winner's-curse type distortions of competition. Contrary to the claims in Sharpe (1990), this game only has an equilibriuim in mixed strategies, which features a partial informational lock-in by firms and random termination of lending relationships.
|Date of creation:||May 1998|
|Date of revision:|
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- Sharpe, Steven A, 1990.
" Asymmetric Information, Bank Lending, and Implicit Contracts: A Stylized Model of Customer Relationships,"
Journal of Finance,
American Finance Association, vol. 45(4), pages 1069-87, September.
- Steven A. Sharpe, 1989. "Asymmetric information, bank lending, and implicit contracts: a stylized model of customer relationships," Finance and Economics Discussion Series 70, Board of Governors of the Federal Reserve System (U.S.).
- Hans Degryse & Partick Van cayseele, 1998.
"Relationship Lending within a Bank-based System: Evidence from European Small Business Data,"
Center for Economic Studies - Discussion papers
ces9816, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
- Degryse, Hans & Van Cayseele, Patrick, 2000. "Relationship Lending within a Bank-Based System: Evidence from European Small Business Data," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 90-109, January.
- Engelbrecht-Wiggans, Richard & Milgrom, Paul R. & Weber, Robert J., 1983. "Competitive bidding and proprietary information," Journal of Mathematical Economics, Elsevier, vol. 11(2), pages 161-169, April.
- Robert Gibbons & Lawrence Katz, 1989.
"Layoffs and Lemons,"
NBER Working Papers
2968, National Bureau of Economic Research, Inc.
- Gibbons, R. & Katz, L.F., 1989. "Layoffs And Lemons," Working papers 531, Massachusetts Institute of Technology (MIT), Department of Economics.
- Robert Gibbons & Lawrence Katz, 1989. "Layoffs and Lemons," Working Papers 629, Princeton University, Department of Economics, Industrial Relations Section..
- Gibbons, Robert & Katz, Lawrence F., 1991. "Layoffs and Lemons," Scholarly Articles 3442782, Harvard University Department of Economics.
- Paul Milgrom & Robert J. Weber, 1981.
"A Theory of Auctions and Competitive Bidding,"
447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Petersen, Mitchell A & Rajan, Raghuram G, 1994. " The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
- Steven Ongena & David C. Smith, 1997.
"Empirical Evidence on the Duration of Bank Relationships,"
Center for Financial Institutions Working Papers
97-15, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Steven Ongena & David C. Smith, 1997. "Empirical Evidence on the Duration of Bank Relationships," Finance 9703002, EconWPA.
- Rajan, Raghuram G, 1992. " Insiders and Outsiders: The Choice between Informed and Arm's-Length Debt," Journal of Finance, American Finance Association, vol. 47(4), pages 1367-400, September.
- Broecker, Thorsten, 1990. "Credit-Worthiness Tests and Interbank Competition," Econometrica, Econometric Society, vol. 58(2), pages 429-52, March.
- Ernst-Ludwig von Thadden, 1995. "Long-Term Contracts, Short-Term Investment and Monitoring," Review of Economic Studies, Oxford University Press, vol. 62(4), pages 557-575.
- Robert B. Wilson, 1967. "Competitive Bidding with Asymmetric Information," Management Science, INFORMS, vol. 13(11), pages 816-820, July.
- Angelini, P. & Di Salvo, R. & Ferri, G., 1998. "Availability and cost of credit for small businesses: Customer relationships and credit cooperatives," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 925-954, August.
- Partha Dasgupta & Eric Maskin, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, I: Theory," Review of Economic Studies, Oxford University Press, vol. 53(1), pages 1-26.
- Enrica Detragiache & Paolo Garella & Luigi Guiso, 2000. "Multiple versus Single Banking Relationships: Theory and Evidence," Journal of Finance, American Finance Association, vol. 55(3), pages 1133-1161, 06.
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