The Trust Alternative∗
نویسندگان
چکیده
We propose an alternative market design to the current credit ratings industrial organization. An issuer delegates a pass-through non-monitoring trust to acquire ratings from credit ratings agencies (CRAs). The trust pays outcome contingent fees, such that truth-telling is incentive compatible for CRAs, eliminating ratings inflation. Moreover, because the trust acts as an intermediary, it eliminates the ability of issuers to shop for better ratings. Surplus generated through improved ratings efficiency ensures voluntary participation in this mechanism from both issuers and CRAs. Finally, outcome contingent payments through the trust can induce CRAs to compete over accuracy of ratings, which is welfare-enhancing. JEL Classification: D21, D43, G24.
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