Multiple Lending and Constrained Efficiency in the Credit Market

Andrea Attar, Eloisa Campioni and Gwenael Piaser
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Andrea Attar: IDEI, Université de Toulouse I and Università di Roma, La Sapienza
Eloisa Campioni: DPTEA, Luiss Guido Carli, Rome
Gwenael Piaser: Università Ca' Foscari di Venezia

The B.E. Journal of Theoretical Economics, 2006, vol. contributions.6, issue 1

Abstract: This paper studies the relationship between competition and incentives in an economy with financial contracts. We concentrate on non-exclusive credit relationships, those where an entrepreneur can simultaneously accept more than one contractual offer. Several homogeneous lenders compete on the contracts they offer to finance the entrepreneur's investment project. We model a common agency game with moral hazard, and characterize its equilibria. As expected, notwithstanding the competition among the principals (lenders), non-competitive outcomes can be supported. In particular, positive profit equilibria are pervasive. We then provide a complete welfare analysis and show that all equilibrium allocations turn out to be constrained Pareto efficient.

Keywords: common agency; moral hazard; Pareto efficiency; second best (search for similar items in EconPapers)
JEL-codes: D4 D6 G2 (search for similar items in EconPapers)
Date: 2006
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Persistent link: http://EconPapers.repec.org/RePEc:bpj:bejtec:v:contributions.6:y:2006:i:1:n:7

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