Campello, Murillo; Matta, Rafael - In: Economics Letters 117 (2012) 3, pp. 639-641
Credit default swaps (CDSs) are thought to ease borrowing by protecting lenders against default. This paper develops a model of the demand for CDS when borrowers choose the riskiness of investment and verification is imperfect. The model shows that CDSs may lead to risk-shifting, increasing the...