Abstract

http://ssrn.com/abstract=391577
 
 

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The One Period Problem of a Monopoly Incentive Compatible Equity and Debt-linked Contracts


Ayi Gavriel Ayayi


Université du Québec

April 24, 2003

EFMA 2003 Helsinki Meetings

Abstract:     
The paper studies what is the optimal financial vehicle that serves a monopoly best interest in nurturing his investees and at the same time can provide a socially optimal welfare. I demonstrate that it is the equity contract that serves the monopoly best interest because the profits it generates are higher than the profits derived from the collateral debt and convertible debt contract. In addition, I show that the equity contract is socially better than the debt-linked. I also show that neither equity nor debt-linked contracts are able to reveal the ability of the entrepreneur.

Number of Pages in PDF File: 30

JEL Classification: G24, D82

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Date posted: April 26, 2003  

Suggested Citation

Ayayi, Ayi Gavriel, The One Period Problem of a Monopoly Incentive Compatible Equity and Debt-linked Contracts (April 24, 2003). EFMA 2003 Helsinki Meetings. Available at SSRN: http://ssrn.com/abstract=391577 or http://dx.doi.org/10.2139/ssrn.391577

Contact Information

Ayi Gavriel Ayayi (Contact Author)
Université du Québec ( email )
3351 Boulevard des Forges C.P 500
Trois Rivières, Québec G9A 5H7
Canada
819 376-5011 ext 3137 (Phone)
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