Long term debt with hidden borrowing

Heski Bar-Isaac and Vicente Cuñat

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: We consider borrowers with the opportunity to raise funds from a competitive baking sector, that shares information about borrowers, and an alternative hidden lender. We highlight that the presence of the hidden lender restricts the contracts that can be obtained from the banking sector and that in equilibrium some borrowers obtain funds from both the banking sector and the (inefficient) hidden lender simultaneously. We further show that as the inefficiency of the hidden lender increases, total welfare decreases. By extending the model to examine a partially hidden lender, we further highlight the key role of information.

Keywords: Hidden Borrowing; Informal Lenders; Borrower Screening; Long Term Debt (search for similar items in EconPapers)
JEL-codes: D14 G21 G33 (search for similar items in EconPapers)
Date: 2005-01
New Economics Papers: this item is included in nep-fin and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Long term debt with Hidden Borrowing (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:803

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