The Lender-Borrower Relationship with Risk Averse Lenders

This paper analyzes optimal incentive compatible debt contracts when lenders are risk averse. The decisive factor in this regard is that risk aversion requiresto consider further sources of risk the lenders are exposed to. The main resultsderived in a setting of asymmetric information – the payment obligation ofthe optimal incentive compatible contract increases due to risk aversion oflenders 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 approachof banking. Moreover, the results of the present paper are more general thanthe ones from the industrial organization approach.

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Year of publication:	2003
Authors:	Pausch, Thilo
Subject:	Kredit \| Finanzierungstheorie \| Risikoaversion \| Anreizvertrag \| Theorie \| debt contracts \| risk aversion \| costly state verification \| risk

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Series:	Volkswirtschaftliche Diskussionsreihe / Institut für Volkswirtschaftslehre der Universität Augsburg ; 244
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Working Paper
Language:	English
Other identifiers:	368284964 [GVK] hdl:10419/22766 [Handle]
Classification:	D8 - Information and Uncertainty ; G33 - Bankruptcy; Liquidation ; D4 - Market Structure and Pricing ; G14 - Information and Market Efficiency; Event Studies
Source:	EconStor