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Volume 52, Issue 11

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Debt Renegotiation with Collateral under Asymmetric Information

Janda, Karel

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

DOI:

RePEc: n/a

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