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Multiple Lending and Constrained Efficiency in the Credit Market

Author

Listed:
  • Andrea Attar

    (Universit� di Roma, La Sapienza
    LUISS, University of Rome)

  • Eloisa Campioni

    (LUISS, University of Rome)

  • Gwen�el Piaser

    (Department of Economics, University Of Venice Ca� Foscari)

Abstract

This paper studies the relationship between competition and incentives in an economy with financial contracts. We concentrate on non-exclusive credit relationships, those where an entrepreneur can simultaneously accept more than one contractual offer. Several homogeneous lenders compete on the contracts they offer to finance the entrepreneur's investment project. We model a common agency game with moral hazard, and we characterize its equilibria. As expected, notwithstanding the competition among the principals (lenders), non-competitive outcomes can be supported. In particular, positive profit equilibria are pervasive. We then provide a complete welfare analysis and show that all equilibrium allocations turn out to be constrained Pareto efficient.

Suggested Citation

  • Andrea Attar & Eloisa Campioni & Gwen�el Piaser, 2006. "Multiple Lending and Constrained Efficiency in the Credit Market," Working Papers 2006_29, Department of Economics, University of Venice "Ca' Foscari".
    • Handle: RePEc:ven:wpaper:2006_29
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    References listed on IDEAS

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    12. Bisin, Alberto & Gottardi, Piero, 1999. "Competitive Equilibria with Asymmetric Information," Journal of Economic Theory, Elsevier, vol. 87(1), pages 1-48, July.
    13. Christine A. Parlour & Uday Rajan, 2001. "Competition in Loan Contracts," American Economic Review, American Economic Association, vol. 91(5), pages 1311-1328, December.
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    16. David Martimort & Lars Stole, 2002. "The Revelation and Delegation Principles in Common Agency Games," Econometrica, Econometric Society, vol. 70(4), pages 1659-1673, July.
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. ATTAR, Andrea & MAJUMDAR, Dipjyoti & PIASER, Gwenaêl & PORTEIRO, Nicolàs, 2003. "Common agency games with separable preferences," LIDAM Discussion Papers CORE 2003102, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. Attar, Andrea & Chassagnon, Arnold, 2009. "On moral hazard and nonexclusive contracts," Journal of Mathematical Economics, Elsevier, vol. 45(9-10), pages 511-525, September.
    3. Degryse, H.A. & Ioannidou, V. & von Schedvin, E.L., 2011. "On the Non-Exclusivity of Loan Contracts : An Empirical Investigation," Discussion Paper 2011-130, Tilburg University, Center for Economic Research.
    4. Alberto Bennardo & Marco Pagano & Salvatore Piccolo, 2015. "Multiple Bank Lending, Creditor Rights, and Information Sharing," Review of Finance, European Finance Association, vol. 19(2), pages 519-570.
    5. Attar, Andrea & Piaser, Gwenael & Porteiro, Nicolas, 2007. "A note on Common Agency models of moral hazard," Economics Letters, Elsevier, vol. 95(2), pages 278-284, May.
    6. Laurence Ales, 2009. "Adverse Selection and Non-exclusive Contracts," 2009 Meeting Papers 854, Society for Economic Dynamics.
    7. Agar Brugiavini & Gwenaël Piaser, 2006. "Nonexclusivity and adverse selection: An application to the annuity market," LSF Research Working Paper Series 06-03, Luxembourg School of Finance, University of Luxembourg.
    8. Attar, Andrea & Majumdar, Dipjyoti & Piaser, Gwenaël & Porteiro, Nicolás, 2008. "Common agency games: Indifference and separable preferences," Mathematical Social Sciences, Elsevier, vol. 56(1), pages 75-95, July.
    9. Roger, Guillaume, 2016. "Participation in moral hazard problems," Games and Economic Behavior, Elsevier, vol. 95(C), pages 10-24.
    10. repec:dau:papers:123456789/4717 is not listed on IDEAS

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    More about this item

    Keywords

    Common Agency; Financial Markets; Efficiency;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D6 - Microeconomics - - Welfare Economics
    • G2 - Financial Economics - - Financial Institutions and Services

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