Moral Hazard with Rating Agency: An Incentive Contracting Approach

Bappaditya Mukhopadhyay ()
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Bappaditya Mukhopadhyay: Management Development Institute
Authors registered in the RePEc Author Service: Bappaditya Mukhopadhyay () and Bappaditya Mukhopadhyay

Annals of Economics and Finance, 2004, vol. 5, issue 2, 313-333

Abstract: Credit Rating agencies su?er from a possible moral hazard problem. This is caused due to the fact that the evaluation standards set by rating agencies are unobservable to outsiders. In this paper, we address the moral hazard problem with the rating agencies. We discuss the feasibility of possible incentive contracts that can ameliorate this problem. We ¡¥nd, that incentive payments to the rating agency based on expected returns on debt will eliminate the moral hazard problem.

Keywords: Credit rating; Information production; Moral hazard (search for similar items in EconPapers)
JEL-codes: G14 G20 G29 (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:cuf:journl:y:2004:v:5:i:2:p:313-333

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