Optimal debt contracts and diversity of opinions: an extreme case of bunching

Ludovic Renou and Guillaume Carlier

No 172, Royal Economic Society Annual Conference 2003 from Royal Economic Society

Abstract: This paper studies optimal menus of debt contracts such as secured debentures or bonds, in the presence of diversity of opinions between borrowers and lenders. We first characterize incentive compatible contracts, then prove the existence of optimal debt contracts. Finally, we are able to explicitly characterize such optimal menus within a specific case: we notably show that borrowers optimally offer at most two contracts, which is an extreme case of bunching.

Keywords: debt contracts; heterogeneity of beliefs; multidimensional screening; bunching (search for similar items in EconPapers)
JEL-codes: C7 D8 G3 (search for similar items in EconPapers)
Date: 2003-06-04
New Economics Papers: this item is included in nep-cfn
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