Arbeitspapier

Are adverse selection models of debt robust to changes in market structure?

Many adverse selection models of standard one-period debt contracts are based on the following seemingly innocuous assumptions.First, entrepreneurs have private information about the quality of their return distributions.Second, return distributions are ordered by the monotone likelihood-ratio property.Third, financiers payoff functions are restricted to be monotonically non-decreasing in firm profits.Fourth, financial markets are competitive.We argue that debt is not an optimal contract in these models if there is only one (monopoly) financier rather than an infinite number of competitive financiers.

Language
Englisch
ISBN
952-462-094-4

Bibliographic citation
Series: Bank of Finland Discussion Papers ; No. 28/2003

Classification
Wirtschaft

Event
Geistige Schöpfung
(who)
Vauhkonen, Jukka
Event
Veröffentlichung
(who)
Bank of Finland
(where)
Helsinki
(when)
2003

Handle
Last update
10.03.2025, 11:44 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Vauhkonen, Jukka
  • Bank of Finland

Time of origin

  • 2003

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