Garino, Gaia; Simmons, Peter - In: Journal of Economic Surveys 20 (2006) 1, pp. 71-110
In the scenario of loan contracts with costly state verification, we examine how the properties of the set of states, different risk preferences of debtors and varying liability of lenders affect the structure of optimal repayments. In particular, we show that with risk-averse debtors, a general...