A Costly State Verification Model with Diversity of Opinions
Economic Theory, 2005, 25, 2, 497-504
CARLIER, Guillaume, RENOU, Ludovic, A Costly State Verification Model with Diversity of Opinions, Economic Theory, 2005, 25, 2, 497-504 - https://hdl.handle.net/1814/16410
Retrieved from Cadmus, EUI Research Repository
In simple models of borrowing and lending with ex-post asymmetric information, Gale and Hellwig (1985) and Williamson (1986) have shown that optimal debt contracts are simple debt contracts where borrowers repay a fixed interest rate whenever possible and lenders seize all the profit when borrowers default. In this note, we depart from their works by assuming that borrowers and lenders have heterogeneous beliefs, and show that simple debt contracts do not necessarily survive as optimal contracts.
Cadmus permanent link: https://hdl.handle.net/1814/16410
Full-text via DOI: 10.1007/s00199-003-0429-5; 10.1007/s00199-003-0429-5
Keyword(s): costly state verification heterogeneity of beliefs
Files associated with this item
There are no files associated with this item.