The one Period Problem of a Monopoly Incentive Compatible Equity and Debt-linked Contracts JEL:G24, D82
نویسندگان
چکیده
In this paper, I analyze the role of equity and debt linked contracts in a monopoly setting. I show that the equity contract dominates the debt linked contracts because it attracts higher ability entrepreneurs and provides more profit to the monopolist. I also show that the social welfare that results from the equity contract exceeds those derived from debt financial instruments. ∗I thank Josh Lerner, Stylianos Perrakis, Michel Poitevin, Michel Patry, Lorne N. Switzer, and Michelle Breton for their insightful and thoughtful comments on the previous version. I am grateful to the participants at the meeting of European Financial Management Association (1999), FMA (2002) AFFI (2002) Portuguese Network (2002) seminar participants at John Molson Business School of Concordia University, HEC of Montreal, Odette Business School of University of Windsor, Business School of University of Regina, and Business School of Memorial University for insightful comments.
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