I model direct competition between investor-paid and issuer-paid credit rating agencies (CRAs). Frictions in the form of issuer private benefits induce issuer-paid CRAs to inflate ratings. Investor-paid CRAs optimally generate more accurate ratings, leading to adverse selection for investors...

This paper investigates the economic viability and welfare contribution of alternatives to issuer-paid credit rating agencies (CRAs). To this end, it introduces a heterogeneous competition model for credit and ratings markets. Frictions among issuers or investors induce rating inflation from...

This paper investigates the economic viability and welfare contribution of alternatives to issuer-paid credit rating agencies (CRAs). To this end, it introduces a heterogeneous competition model for lending and ratings markets. Frictions among issuers or investors induce rating inflation from...