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Optimal debt contracts and diversity of opinions: an extreme case of bunching

Renou, Ludovic and Carlier, Guillaume (2003) Optimal debt contracts and diversity of opinions: an extreme case of bunching. Working Paper. Royal Economic Society Annual Conference 2003.

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Abstract

This paper studies optimal menus of debt contracts such as secured debentures or bonds, in the presence of diversity of opinions between borrowers and lenders. We first characterize incentive compatible contracts, then prove the existence of optimal debt contracts. Finally, we are able to explicitly characterize such optimal menus within a specific case: we notably show that borrowers optimally offer at most two contracts, which is an extreme case of bunching.

Item Type: Monograph (Working Paper)
Uncontrolled Keywords: debt contracts; heterogeneity of beliefs; multidimensional screening; bunching
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Jim Jamieson
Date Deposited: 06 Jan 2013 23:06
Last Modified: 06 Jan 2013 23:06
URI: http://repository.essex.ac.uk/id/eprint/5006

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