Revisiting financial contracting with limited liability
by Zhengqing Gui
THESIS
2016
M.Phil. Economics
vi pages, 16 leaves : illustrations ; 30 cm
Abstract
In the presence of limited liability, the incentive compatibility constraints in
many financial contracting models with asymmetric information have been mis-specified (e.g., Faure-Frimaud, 2000), leading the analysis to be too simplistic and
incorrect. In this paper, we identify this mistake in the literature, and provide a
rigorous proof of optimality of debt contracts under fairly general assumptions.
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