Asymmetric Information, Bank Lending and Implicit Contracts: The Winner's Curse

Ernst-Ludwig von Thadden

Cahiers de Recherches Economiques du Département d'économie from Université de Lausanne, Faculté des HEC, Département d’économie

Abstract: The purpose of this note is to point out an error in a widely cited paper by Sharpe (1990) on long-term bank-firm relationships and to provide a correct analysis of the problem. The model studies repeated lending under asymmetric information which leads to winner's-curse type distortions of competition. Contrary to the claims in Sharpe (1990), this game only has an equilibriuim in mixed strategies, which features a partial informational lock-in by firms and random termination of lending relationships.

Keywords: Author-Name: banking relationships; competition under asymmetric information; informational lock-in; auctions (search for similar items in EconPapers)
JEL-codes: D43 D44 D82 G21 G30 (search for similar items in EconPapers)
Pages: 16 pages
Date: 1998-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Related works:
Journal Article: Asymmetric information, bank lending and implicit contracts: the winner's curse (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:lau:crdeep:9809

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