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Debt contracts with ex-ante and ex-post asymmetric information: an example

Renou, Ludovic; Carlier, Guillaume (2006), Debt contracts with ex-ante and ex-post asymmetric information: an example, Economic Theory, 28, 2, p. 461-473. http://dx.doi.org/10.1007/s00199-005-0632-7

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Type
Article accepté pour publication ou publié
Date
2006
Journal name
Economic Theory
Volume
28
Number
2
Publisher
Springer
Pages
461-473
Publication identifier
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Author(s)
Renou, Ludovic
Carlier, Guillaume
Abstract (EN)
We consider a simple model of lending and borrowing combining two informational problems: adverse selection and costly state verification. Our analysis highlights the interaction between these two informational problems. We notably show that the higher the monitoring cost, the less discriminating the optimal menu of contracts is.
Subjects / Keywords
Debt contracts; Diversity of opinions; Screening; Costly monitoring; Pooling
JEL
C7 - Game Theory and Bargaining Theory
D8 - Information, Knowledge, and Uncertainty
G3 - Corporate Finance and Governance