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Mixed signals : investment distortions with adverse selection

Darst, R. Matthew; Refayet, Ehraz - 2019

We study how adverse selection distorts equilibrium investment allocations in a Walrasian credit market with two …-sided heterogeneity. Representative investor and partial equilibrium economies are special cases where investment allocations are … trade and investment allocations below perfect information levels. The degree of heterogeneity between informed agents' type …

Persistent link: https://www.econbiz.de/10012181247

Chapter 10. Recursive Contracts and Endogenously Incomplete Markets

Golosov, M.; Tsyvinski, A.; Werquin, N. - In: Handbook of macroeconomics : volume 2, v. 2A-2B SET, (pp. 725-841). 2016

In this chapter we study dynamic incentive models in which risk sharing is endogenously limited by the presence of informational or enforcement frictions. We comprehensively overview one of the most important tools for the analysis such problems—the theory of recursive contracts. Recursive...

Persistent link: https://www.econbiz.de/10014024287

Moral Hazard and Efficiency in General Equilibrium with Anonymous Trading

Acemoglu, Daron - 2010

A "folk theorem" originating, among others, in the work of Stiglitz maintains that competitive equilibria area always or "generically" inefficient (unless contracts directly specify consumption levels as in Prescott and Townsend, thus bypassing trading in anonymous markets). This paper...

Persistent link: https://www.econbiz.de/10013144184

Enduring Relationships in an Economy with Capital and Private Information

Khan, Aubhik; Popov, Latchezar; Ravikumar, B. - 2020

We study efficient risk sharing in a model where agents operate linear production technologies with private information about idiosyncratic productivity. Capital is the sole factor of production, and accumulable. We establish a time-invariant, one-to-one mapping between the capital allocated to...

Persistent link: https://www.econbiz.de/10014048739

Moldy Lemons and Market Shutdowns

Chang, Jin-Wook; Darst, Matthew - 2022

This paper studies competitive market shutdowns due to adverse selection, where sellers post nonexclusive menus of contracts. We first show that the presence of the worst type of agents (moldy lemons) causes markets to fail only if their mass is sufficiently large. We then show that a small mass...

Persistent link: https://www.econbiz.de/10013293231

Unconventional credit policy in an economy under zero lower bound

Pozo, Jorge; Rojas, Youel - 2021

In this paper we develop a simple two-period model that reconciles credit demand and supply frictions. In this stylized but realistic model credit and deposit markets are interlinked and credit demand and credit supply frictions amplify each other in such a way that produces in equilibrium very...

Persistent link: https://www.econbiz.de/10012590148

Why bank money creation?

Gersbach, Hans; Zelzner, Sebastian - 2022 - This version: April 20, 2022

We provide a rationale for bank money creation in our current monetary system by investigating its merits over a system with banks as intermediaries of loanable funds. The latter system could result when CBDCs are introduced. In the loanable funds system, households limit banks' leverage ratios...

Persistent link: https://www.econbiz.de/10013187924

Division of labour and directed production

Ratto, Marisa; Schnedler, Wendelin - 2005

We examine a situation where efforts on different tasks positively affect production but are not separately verifiable and where the manager (principal) and the worker (agent) have different ideas about how production should be carried out: agents prefer a less efficient way of production. We...

Persistent link: https://www.econbiz.de/10003114944

When banks' shadow fades and shadow banking rises : securitization and loan performance in China

Gong, Di; Wu, Jin; Zhu, Jigao - 2023

This study examines the relationship between securitization and loan performance using proprietary loan-level data from a Chinese bank. Securitized loans exhibit lower ex-post default rates and prepayment chances compared to the loans retained on the bank's balance sheet, suggesting no adverse...

Persistent link: https://www.econbiz.de/10014342279

Second-Degree Moral Hazard in a Real-World Credence Goods Market

Balafoutas, Loukas; Kerschbamer, Rudolf; Sutter, Matthias - 2013 - This version: 16 October 2013

Empirical literature on moral hazard focuses exclusively on the direct impact of asymmetric information on market outcomes, thus ignoring possible repercussions. We present a field experiment in which we consider a phenomenon that we call second-degree moral hazard - the tendency of the supply...

Persistent link: https://www.econbiz.de/10010193289