Economics at your fingertips  

A Liquidity-Based Model of Security Design

Peter DeMarzo and Darrell Duffie

Econometrica, 1999, vol. 67, issue 1, 65-100

Abstract: The authors consider the problem of design and sale of a security backed by specified assets. Given access to higher-return investments, the issuer has an incentive to raise capital by securitizing part of these assets. At the time the security is issued, the issuer's or underwriter's private information regarding the payoff of the security may cause illiquidity in the form of a downward-sloping demand curve for the security. The authors characterize the optimal security design in several cases. They also demonstrate circumstances under which standard debt is optimal and show that the riskiness of the debt is increasing in the issuer's retention costs for assets.

Date: 1999
References: Add references at CitEc
Citations View citations in EconPapers (157) Track citations by RSS feed

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
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:

Ordering information: This journal article can be ordered from
https://www.economet ... ordering-back-issues

Access Statistics for this article

Econometrica is currently edited by Daron Acemoglu

More articles in Econometrica from Econometric Society Contact information at EDIRC.
Series data maintained by Wiley-Blackwell Digital Licensing ().

Page updated 2017-09-29
Handle: RePEc:ecm:emetrp:v:67:y:1999:i:1:p:65-100