Joint Liability Lending and the Peer Selection Effect
Maitreesh Ghatak () and
Robert Lensink ()
Economic Journal, 2005, vol. 115, issue 506, 1005-1015
We show that the joint liability lending contracts derived in Ghatak (2000) violate an "ex post" incentive-compatibility constraint which says that the amount of joint liability cannot exceed the amount of individual liability. We derive and characterise optimal separating joint liability contracts incorporating this constraint. Copyright 2005 Royal Economic Society.
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