English, Article, Journal or magazine article edition: Collateralized debt as the optimal contract Jeffrey M. Lacker

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Bookmark: http://trove.nla.gov.au/version/74740
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Collateralized debt as the optimal contract
Author
  • Jeffrey M. Lacker
Physical Description
  • preprint
Notes
  • In a simple risk-sharing environment with ex post private information, conditions are found under which a collateralized debt contract is the optimal allocation. The critical condition for optimality is that the borrower values the collateral good more highly than does the lender; otherwise the optimal contract does not resemble debt. Limited collateral can give rise to an endogenous borrowing constraint, driving a further wedge between the intertemporal marginal rates of substitution of the borrower and the lender. I argue that perhaps all debt contracts are implicitly collateralized.
  • Debt
  • RePEc:fip:fedrwp:98-04
Language
  • English
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