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:||03 Feb 2005|
|Date of revision:|
|Note:||Type of Document - pdf. See Ludovic Renou webpage for a technical appendix.|
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- Boyd, John H & Smith, Bruce D, 1993.
"The Equilibrium Allocation of Investment Capital in the Presence of Adverse Selection and Costly State Verification,"
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- Guillaume Carlier & Ludovic Renou, 2005. "A costly state verification model with diversity of opinions," Economic Theory, Springer, vol. 25(2), pages 497-504, 02.
- Gale, Douglas & Hellwig, Martin, 1985. "Incentive-Compatible Debt Contracts: The One-Period Problem," Review of Economic Studies, Wiley Blackwell, vol. 52(4), pages 647-63, October.
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