Optimal debt contracts and diversity of opinions: an extreme case of bunching

This paper studies optimal menus of debt contracts such as secured debentures or bonds, in the presence of diversity of opinions between borrowers and lenders. We first characterize incentive compatible contracts, then prove the existence of optimal debt contracts. Finally, we are able to explicitly characterize such optimal menus within a specific case: we notably show that borrowers optimally offer at most two contracts, which is an extreme case of bunching.

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Year of publication:	2003-06-04
Authors:	Renou, Ludovic ; Carlier, Guillaume
Institutions:	Royal Economic Society - RES
Subject:	debt contracts \| heterogeneity of beliefs \| multidimensional screening \| bunching

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Series:	Royal Economic Society Annual Conference 2003.
Type of publication:	Book / Working Paper
Language:	English
Notes:	The text is part of a series Royal Economic Society Annual Conference, 2003 Number 172
Classification:	C7 - Game Theory and Bargaining Theory ; D8 - Information and Uncertainty ; G3 - Corporate Finance and Governance
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005398544