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Optimal Lending Contracts with Asymmetric Information and Two-sided Limited Commitment or Impatient Entrepreneur

  • Shuyun May Li
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    This paper discusses two ways to amend the optimal lending contract under asymmetric information studied in Clementi and Hopenhayn (2006) to change its long-run implications so that firm growth and exit driven by borrowing constraints exist in the long run. One way assumes that the entrepreneur has a lower discount factor than the bank, and the other assumes the bank has limited commitment. The optimal lending contracts under each variation closely resemble each other.

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    File URL: http://fbe.unimelb.edu.au/__data/assets/pdf_file/0003/801129/1065.pdf
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    Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 1065.

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    Length: 35 pages
    Date of creation: 2009
    Date of revision:
    Handle: RePEc:mlb:wpaper:1065
    Contact details of provider: Postal:
    Department of Economics, The University of Melbourne, 4th Floor, FBE Building, Level 4, 111 Barry Street. Victoria, 3010, Australia

    Phone: +61 3 8344 5355
    Fax: +61 3 8344 6899
    Web page: http://fbe.unimelb.edu.au/economics
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    1. Andrew Atkeson & Robert E. Lucas, 1992. "On Efficient Distribution With Private Information," Review of Economic Studies, Oxford University Press, vol. 59(3), pages 427-453.
    2. Smith, Anthony Jr. & Wang, Cheng, 2006. "Dynamic credit relationships in general equilibrium," Journal of Monetary Economics, Elsevier, vol. 53(4), pages 847-877, May.
    3. Dirk Krueger & Harald Uhlig, 2003. "Competitive Risk Sharing Contracts with One-Sided Commitment," NBER Working Papers 10135, National Bureau of Economic Research, Inc.
    4. Thomas Cooley & Ramon Marimon & Vincenzo Quadrini, 2003. "Aggregate Consequences of Limited Contract Enforceability," NBER Working Papers 10132, National Bureau of Economic Research, Inc.
    5. Atkeson Andrew & Lucas Jr. , Robert E., 1995. "Efficiency and Equality in a Simple Model of Efficient Unemployment Insurance," Journal of Economic Theory, Elsevier, vol. 66(1), pages 64-88, June.
    6. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932.
    7. S. Rao Aiyagari & Stephen D. Williamson, 1998. "Money and dynamic credit arrangements with private information," Working Paper 9807, Federal Reserve Bank of Cleveland.
    8. Evans, David S., 1986. "The Relationship Between Firm Growth, Size, and Age: Estimates for 100 Manufacturing Industries," Working Papers 86-33, C.V. Starr Center for Applied Economics, New York University.
    9. S. Rao Aiyagari & Stephen D. Williamson, 1997. "Credit in a Random Matching Model With Private Information," Game Theory and Information 9705005, EconWPA.
    10. Phelan Christopher, 1995. "Repeated Moral Hazard and One-Sided Commitment," Journal of Economic Theory, Elsevier, vol. 66(2), pages 488-506, August.
    11. Alexander Monge-Naranjo, 2009. "Entrepreneurship and firm heterogeneity with limited enforcement," Annals of Finance, Springer, vol. 5(3), pages 465-494, June.
    12. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1987. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc.
    13. Wang, Cheng, 2000. "Renegotiation-Proof Dynamic Contracts with Private Information," Staff General Research Papers 5248, Iowa State University, Department of Economics.
    14. Albuquerque, R. & Hopenhayn, H.A., 1997. "Optimal Dynamic Lending Contracts with Imperfect Enforceability," RCER Working Papers 439, University of Rochester - Center for Economic Research (RCER).
    15. Gian Luca Clementi & Hugo A. Hopenhayn, 2006. "A Theory of Financing Constraints and Firm Dynamics," The Quarterly Journal of Economics, Oxford University Press, vol. 121(1), pages 229-265.
    16. Stephen E. Spear & Sanjay Srivastava, 1987. "On Repeated Moral Hazard with Discounting," Review of Economic Studies, Oxford University Press, vol. 54(4), pages 599-617.
    17. Quadrini, Vincenzo, 2004. "Investment and liquidation in renegotiation-proof contracts with moral hazard," Journal of Monetary Economics, Elsevier, vol. 51(4), pages 713-751, May.
    18. Xiaoqiang Hu & Fabio Schiantarelli, 1998. "Investment And Capital Market Imperfections: A Switching Regression Approach Using U.S. Firm Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 466-479, August.
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