The authors examine how market structure affects credit allocation under universal risk neutrality and asymmetric information about borrowers. They consider both monopolistic and perf ectly-competitive banks and examine the role of collateral in each ca se. When a bank is a monopolist on the...

Clemenz's 1993 comment criticizes our 1987 paper in two ways: first, a Nash equilibrium with rationing does not exist; second, allowing randomization across credit contracts changes the equilibrium from our 1987 paper. We respond as follows. First, our rationing equilibrium is a sequential...

This paper studies transfer prices and compensation mechanisms in a principal-agent model with moral hazard and private information by the agent. Production requires unobservable effort by the agent and a purchased input. In general, it is optimal for the principal to create an internal market...