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Debt contracts and cooperative improvements [An article from: Journal of Mathematical Economics]
Book Details
Author(s)
S. Krasa, T. Sharma, A.P. Villamil
Publisher
Elsevier
ISBN / ASIN
B000RR7Q80
ISBN-13
978B000RR7Q87
Availability
Available for download now
Marketplace
United States 🇺🇸
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Description
This digital document is a journal article from Journal of Mathematical Economics, published by Elsevier in . The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.
Description:
In this paper, we consider a dynamic game with imperfect information between a borrower and lender who must write a contract to produce a consumption good. In order to analyze the game, we introduce the concept of a coalitional perfect Bayesian Nash equilibrium (cPBNE). We prove that equilibria exist and are efficient in a precise sense, and that deterministic contracts that resemble debt are optimal for a general class of economies. The cPBNE solution concept captures both the non-cooperative aspect of firm liquidation and the cooperative aspect of renegotiation.
Description:
In this paper, we consider a dynamic game with imperfect information between a borrower and lender who must write a contract to produce a consumption good. In order to analyze the game, we introduce the concept of a coalitional perfect Bayesian Nash equilibrium (cPBNE). We prove that equilibria exist and are efficient in a precise sense, and that deterministic contracts that resemble debt are optimal for a general class of economies. The cPBNE solution concept captures both the non-cooperative aspect of firm liquidation and the cooperative aspect of renegotiation.
