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Erschienen in:
2005 | OriginalPaper | Buchkapitel
Risk aversion and incentive compatibility with ex post information asymmetry
verfasst von : Martin F. Hellwig
Erschienen in: Differential Information Economies
Verlag: Springer Berlin Heidelberg
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The paper extends Diamond’s (1984) analysis of financial contracting with information asymmetry
ex post
and endogenous “bankruptcy penalties” to allow for risk aversion of the borrower. The optimality of
debt contracts
, which Diamond obtained for the case of risk neutrality, is shown to be nonrobust to the introduction of risk aversion. This contrasts with the costly state verification literature, in which debt contracts are optimal for risk averse as well as risk neutral borrowers.