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This paper analyzes a dynamic lending relationship where the borrower cannot be forced to make repayments, and the lender offers long-term contracts that are imperfectly enforced and repeatedly renegotiated. No commitment and full commitment by the lender are special cases of this model where...
Persistent link: https://www.econbiz.de/10010720108
down-payment requirements. Lenders also face substantial informational problems. Default rates rise significantly with loan …
Persistent link: https://www.econbiz.de/10004999864
Persistent link: https://www.econbiz.de/10008584461
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We study subgame-perfect implementation (SPI) mechanisms that have been proposed as a solution to incomplete contracting problems. We show that these mechanisms, which are based on off-equilibrium arbitration clauses that impose large fines for lying and the inappropriate use of arbitration,...
Persistent link: https://www.econbiz.de/10013502140
We consider a moral hazard problem where the principal is uncertain as to what the agent can and cannot do: she knows some actions available to the agent, but other, unknown actions may also exist. The principal demands robustness, evaluating possible contracts by their worst-case performance,...
Persistent link: https://www.econbiz.de/10011156807
Contract theory claims that renegotiation prevents attainment of the efficient solution that could be obtained under … full commitment. Assessing the cost of renegotiation remains an open issue from an empirical viewpoint. We fit a structural … principal-agent model with renegotiation on a set of contracts for urban transport services. The model captures two important …
Persistent link: https://www.econbiz.de/10010815474
paving contracts we show that renegotiation imposes significant adaptation costs. Reduced form regressions suggest that …
Persistent link: https://www.econbiz.de/10010815559
Thinking about contingencies, designing covenants, and seeing through their implications is costly. Parties to a contract accordingly use heuristics and leave it incomplete. The paper develops a model of limited cognition and examines its consequences for contractual design. (JEL D23, D82, D86, L22)
Persistent link: https://www.econbiz.de/10004999833
Research in sociology and ethics suggests that individuals adhere to social norms of behavior established by their peers. Within an agency framework, we model endogenous social norms by assuming that each agent’s cost of implementing an action depends on the social norm for that action,...
Persistent link: https://www.econbiz.de/10005573699