Gersbach, H.; Uhlig, H.F.H.V.S. - Tilburg University, Center for Economic Research - 1998
may make the lending altogether unprofitable. Second, banks can have an incentive to offer a debt contract and additional … equity contracts to intermediate debtors. This combination, however, is in turn dominated by a simple debt contract that is … to avoid the contract with the highest chance of delivery: that contract attracts all bad entrepreneurs. …