Long-term debt and hidden borrowing

Bar-Isaac, Heski and Cuñat, Alejandro (2005) Long-term debt and hidden borrowing. Discussion paper, 542. Financial Markets Group, 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.lse.ac.uk
Additional Information:	© 2005 The Authors
Uncontrolled Keywords:	Long term debt, Hidden borrowing, Debt contracts, Adverse selection
Library of Congress subject classification:	H Social Sciences > HG Finance H Social Sciences > HB Economic Theory
Journal of Economic Literature Classification System:	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
Sets:	Research centres and groups > Financial Markets Group (FMG) Collections > Economists Online
Rights:	http://www.lse.ac.uk/library/rights/LSERO.htm
Identification Number:	542
URL:	http://eprints.lse.ac.uk/24661/

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