The Lender-Borrower Relationship with Risk Averse Lenders
نویسنده
چکیده
This paper analyzes optimal incentive compatible debt contracts when lenders are risk averse. The decisive factor in this regard is that risk aversion requires to consider further sources of risk the lenders are exposed to. The main results derived in a setting of asymmetric information – the payment obligation of the optimal incentive compatible contract increases due to risk aversion of lenders which is reinforced by the introduction of a further source of risk – are shown to be in line with the results from the industrial organization approach of banking. Moreover, the result of the present paper are more general than the ones from the industrial organization approach.
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