We study a dynamic model of collateralized lending under adverse selection in which the quality of collateral assets is endogenously determined by hidden effort. Complementarities in incentives lead to non-ergodic dynamics: Asset quality and output grow when asset quality is high, but stagnate...

The objective of this paper is to pursue an intuitive idea: for a consumer who represents an "unfavorable" health risk but an "excellent risk" as a driver, a multi-peril policy could be associated with a reduced selection effort on the part of the insurer. If this intuition should be confirmed,...