In a simple risk-sharing environment with ex post private information, conditions are found under which a collateralized debt contract is the optimal allocation. The critical condition for optimality is that the borrower values the collateral good more highly than does the lender; otherwise the...

In a two-agent, two-good, private information, risk-sharing environment, conditions are described under which a collateralized debt contract is the optimal allocation within the set of all resource and incentive feasible allocations, even allowing for extraneous randomization. In a...