|
Archive@NYU >
Stern School of Business >
Economics Working Papers >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26098
|
| Title: | "Long term debt with Hidden Borrowing" |
| Authors: | Bar-Isaac, Heski
Cuñat, Vicente |
| Keywords: | Long-term debt
hidden borrowing
debt contracts
adverse selection |
| Issue Date: | Jan-2008 |
| Series/Report no.: | EC-05-04 |
| Abstract: | We consider borrowers with the opportunity to raise funds from a
competitive banking sector that shares information, and from an
alternative hidden lender. The presence of the hidden lender allows
borrowers to conceal poor results from their banks and, thus, restricts
the contracts that can be obtained from the banking sector and reduces
welfare. In equilibrium, some borrowers obtain funds from both the
banking sector and the inefficient hidden lender simultaneously;
cross-subsidies arise between different borrowers and this leads to too
little liquidation. Imposing distributional assumptions, we fully
characterize outcomes and show that as the cost of borrowing from the
hidden lender increases, total welfare increases. We generalize the
model to allow for a partially hidden lender and obtain qualitatively
similar results. |
| URI: | http://hdl.handle.net/2451/26098 |
| Appears in Collections: | Economics Working Papers
|
All items in Faculty Digital Archive are protected by copyright, with all rights reserved.
|
