Long-term debt and hidden borrowing

Bar-Isaac, Heski and Cuñat, Alejandro ORCID: 0000-0001-7504-2801 (2005) Long-term debt and hidden borrowing. Financial Markets Group Discussion Papers (542). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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Abstract

We consider borrowers with the opportunity to raise funds from a competitive banking sector that shares information, and from an alternative hidden lender. The presence of the hidden lender restricts the contracts that can be obtained from the banking sector. In equilibrium some borrowers obtain funds from both the banking sector and the inefficient hidden lender simultaneously. We further show that as the cost of borrowing from the hidden lender increases, total welfare increases. We generalize the model to allow for a partially hidden lender and obtain qualitatively similar results.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://fmg.ac.uk
Additional Information:	© 2005 The Authors
Divisions:	Financial Markets Group
Subjects:	H Social Sciences > HG Finance H Social Sciences > HB Economic Theory
JEL classification:	D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D86 - Economics of Contract: Theory G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information D - Microeconomics > D1 - Household Behavior and Family Economics > D14 - Personal Finance
Date Deposited:	30 Jul 2009 09:36
Last Modified:	11 Dec 2024 18:42
URI:	http://eprints.lse.ac.uk/id/eprint/24661

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