Privately optimal contracts and suboptimal outcomes in a model of agency costs
Charles Carlstrom,
Timothy Fuerst and
Matthias Paustian
Additional contact information
Matthias Paustian: https://www.federalreserve.gov/econres/matthias-o-paustian.htm
No 1239, Working Papers (Old Series) from Federal Reserve Bank of Cleveland
Abstract:
This paper derives the privately optimal lending contract in the celebrated financial accelerator model of Bernanke, Gertler and Gilchrist (1999). The privately optimal contract includes indexation to the aggregate return on capital, household consumption, and the return to internal funds. Although privately optimal, this contract is not welfare maximizing as it leads to a sub-optimally high price of capital. The welfare cost of the privately optimal contract (when compared to the planner outcome) is significant. A menu of time-varying taxes and subsidies can decentralize the planner?s allocations.
Keywords: Equilibrium (Economics) - Mathematical models; Financial markets; Macroeconomics (search for similar items in EconPapers)
Pages: 40 pages
Date: 2013
New Economics Papers: this item is included in nep-dge
References: Add references at CitEc
Citations: View citations in EconPapers (3)
Downloads: (external link)
https://www.clevelandfed.org/newsroom-and-events/p ... ptimal-outcomes.aspx Full text (application/pdf)
Related works:
Working Paper: Privately optimal contracts and suboptimal outcomes in a model of agency costs (2012) ![Downloads](/downloads_econpapers.gif)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:fip:fedcwp:1239
Ordering information: This working paper can be ordered from
4d.library@clev.frb.org
Access Statistics for this paper
More papers in Working Papers (Old Series) from Federal Reserve Bank of Cleveland Contact information at EDIRC.
Bibliographic data for series maintained by 4D Library (4d.library@clev.frb.org).