Long-term debt and hidden borrowing

Heski Bar-Isaac and Vicente Cuñat

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We consider borrowers with the opportunity to raise funds from a competitive banking sector that shares information, and from an alternative hidden lender. The presence of the hidden lender restricts the contracts that can be obtained from the banking sector. In equilibrium some borrowers obtain funds from both the banking sector and the inefficient hidden lender simultaneously. We further show that as the cost of borrowing from the hidden lender increases, total welfare increases. We generalize the model to allow for a partially hidden lender and obtain qualitatively similar results.

Keywords: long term debt; hidden borrowing; debt contracts; adverse selection (search for similar items in EconPapers)
JEL-codes: D14 D82 D86 G21 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2005-06-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://eprints.lse.ac.uk/24661/ Open access version. (application/pdf)

Related works:
Journal Article: Long-Term Debt and Hidden Borrowing (2014)
Working Paper: Long-term Debt and Hidden Borrowing (2012)
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:ehl:lserod:24661

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().