Optimal contracts under imperfect enforcement revisited

We consider a financing game with costly enforcement based on Townsend (1979), but where monitoring is non-contractible and allowed to be stochastic. Debt is the optimal contract. Moreover, the debt contract induces creditor leniency and strategic defaults by the borrower on the equilibrium path, consistent with empirical evidence on repayment and monitoring behavior in credit markets.

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Year of publication:	2005-09-12
Authors:	Hvide, Hans K.
Institutions:	Institutt for foretaksøkonomi, Norges Handelshøyskole (NHH)
Subject:	Costly state verification \| debt contract \| priority violation \| strategic defaults

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Extent:	application/pdf
Series:	Discussion Papers.
Type of publication:	Book / Working Paper
Notes:	The text is part of a series Discussion Papers Number 2005/4 21 pages
Classification:	D02 - Institutions: Design, Formation, and Operations ; D82 - Asymmetric and Private Information ; G21 - Banks; Other Depository Institutions; Mortgages ; G33 - Bankruptcy; Liquidation
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005190566