Abstract
We provide a \r\n characterization of the optimal loan contract with costly state verification\r\nfor the bank when the entrepreneur is risk averse and holds a belief \r\ndifferent from that of the bank.\r\n\r\nWhile the optimality problem is formally infinite dimensional, under realistic assumptions it becomes finite dimensional. We provide\r\nconditions and examples to show that when the borrower is more\r\noptimistic than the bank, there may be only one verification region. \r\n\r\nA simple example, based on Bernanke and Gertler (1989), shows\r\nthat as the borrower becomes more optimistic the financial\r\naccelerator (Bernanke et al., 1999) becomes more\r\npotent.
Lingua originale | Inglese |
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pagine (da-a) | 89-105 |
Numero di pagine | 17 |
Rivista | Mathematical Social Sciences |
Volume | 2015 |
Numero di pubblicazione | 78 |
DOI | |
Stato di pubblicazione | Pubblicato - 2015 |
All Science Journal Classification (ASJC) codes
- Sociologia e Scienze Politiche
- Scienze Sociali Generali
- Psicologia Generale
- Statistica, Probabilità e Incertezza
Keywords
- Loan Contract