A General Equilibrium Analysis of the Credit Market

Kaniska Dam ()
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Kaniska Dam: Division of Economics, CIDE

No DTE 461, Working Papers from CIDE, División de Economía

Abstract: I analyse a model of incentive contracts where principals who each possesses the same monitoring technologies, contract with agents from a pool of individuals differing in their wealth endowments. Principals and agents are matched to form partnerships, and the matches are subject to a double-sided moral hazard problems. Agents need to borrow from the principals to finance their projects. In equilibrium, the payoffs to the principals and agents are determined endogenously. The wealthier agents consume higher payoffs, whereas all principals get the same payoff. I further analyse the effects of changes in the monitoring cost and the risk-free interest rate on the optimal monitoring and stock prices.

Keywords: General Equilibrium; Credit Market; incentive contracts (search for similar items in EconPapers)
JEL-codes: D86 E51 L14 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2009-10
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