Online Appendix Dynamic Pricing under Debt: Spiraling Distortions and Efficiency Losses A Model with Nonzero Limited Liability
ثبت نشده
چکیده
Our base model assumed zero liability under debt, so that the DM’s objective was given by E [ (R(p)− B)+ ] . In practice, failing to repay the debt often carries negative consequences for a borrower due to, e.g., recourse by the lender (Wells Fargo, 2016), or bankruptcy/reputation costs when the firm goes into default. To capture this limited (but nonzero) liability, we now assume that a DM faced with a debt payment B maximizes the following objective function:
منابع مشابه
How Costly Are Limited Liability Rules?
We quantify the cost of limited liability rules in a traditional model of investment financing under moral hazard and risk aversion. Under limited liability, we show that external debt and the granting of absolute priority to debtholders are key (but not the unique) ingredients of the optimal financing package. Removing liability limits makes possible a superior contract that punishes the entre...
متن کاملProduct Safety : Liability , R & D and Signaling
* The financial support of NSF grants SES91-12914 and SES92-23087 is gratefully acknowledged. ABSTRACT This paper develops a two-stage model of product design and safety signaling incorporating a parametric liability specification in a monopoly context. In the first stage, the firm engages in research and development in order to determine the safety of its product. We model the research and dev...
متن کاملA Binomial Lattice Method for Pricing Corporate Debt and Modeling Chapter 11 Proceedings
The pricing of corporate debt is still a challenging and active research area in corporate finance. Starting with Merton (1974), many authors proposed a structural approach in which the value of the assets of the firm is modeled by a stochastic process, and all other variables are derived from this basic process. These structural models have become more complex over time in order to capture mor...
متن کاملMeasuring a Dynamic Efficiency Based on MONLP Model under DEA Control
Data envelopment analysis (DEA) is a common technique in measuring the relative efficiency of a set of decision making units (DMUs) with multiple inputs and multiple outputs. Standard DEA models are quite limited models, in the sense that they do not consider a DMU at different times. To resolve this problem, DEA models with dynamic structures have been proposed.In a recent pape...
متن کاملHedonic Pricing under Uncertainty: A Theoretical Consumer Behavior Model
A model of consumer behavior has been formulated by using an additive utility function and the hedonic pricing approach, in a virtual market. Since, there is a time lag between ordering and purchasing products (goods and services) online and receiving them, it means the consumer makes decision under uncertainty. The level of satisfaction with products with distinctive characteristics is describ...
متن کامل