Debt Renegotiation with Collateral under Asymmetric Information
Year: 2002 Volume: 52 Issue: 11 Pages: 634-635
Abstract: This paper analyzes the adverse-selection model of the financing of high-risk investment projects with a possibility of utilizing collateralized debt contracts. Due to the costly verification of the project outcomes, debt renegotiation becomes a possibility. The author shows that debt renegotiation increases the welfare and does not preclude the use of collateral as a screening device.
JEL classification: C72, D82, G33
Keywords: adverse selection; costly state verification; collateral; credit
RePEc: n/a
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