We present a model of risky debt in which collateral value is correlated with the possibility of default. The model is … then used to study: 1) the expected amount of debt recovered in the event of default as a function of collateral; and 2 …) the amount of collateral needed to mitigate the riskiness of a loan to a desired degree. The results obtained could prove …

This theoretical paper explores screening with loan collateral when both the collateral value and the probability of …-risk borrowers may in such case be more willing to pledge collateral than low-risk borrowers. Abundant collateral then would not … signal low risk. The results may help explain the mixed empirical findings on the role of collateral. The paper also extends …

We investigate the impact of bank competition on the use of collateral in loan contracts. We develop a theoretical … borrower and asking for collateral. We show that presence of collateral is more likely when bank competition is low. We then … of collateral is regressed on bank competition, measured by the Lerner index. Our empirical tests corroborate the …

This theoretical paper explores the effects of costly and non-costly collateral on moral hazard, when collateral value … may fluctuate. Given that all collateral is costly, stochastic collateral will entail the same positive incentive effects … as nonstochastic collateral, provided the variation in collateral value is modest. If it is large, the incentive effects …