This note argues that the joint liability contracting equilibria worked out in Ghatak(2000) have a serious drawback in that, even though incentive compatible ex ante, they violate ex post rationality. For such contracts to be feasible, banks should be able to extract more under failure than...

We show that the joint liability lending contracts derived in Ghatak (2000) violate an ex post incentive-compatibility constraint which says the amount of joint liability cannot exceed the amount of individual liability. We derive and characterize optimal separating joint liability contracts...

We show that the joint liability lending contracts derived in <link rid="b4">Ghatak (2000)</link> violate an "ex post" incentive-compatibility constraint which says that the amount of joint liability cannot exceed the amount of individual liability. We derive and characterise optimal separating joint liability...