On the Role of Menus in Sequential Contracting: A Multiple Lending Example

15 Pages Posted: 13 Jul 2017

See all articles by Andrea Attar

Andrea Attar

Toulouse School of Economics; University of Roma Tor Vergata

Catherine Casamatta

TSE-University of Toulouse 1

Arnold Chassagnon

Paris School of Economics (PSE)

Jean Dechamps

University of Toulouse 1 - Toulouse School of Economics (TSE)

Date Written: April 10, 2017

Abstract

We study a capital market in which multiple lenders sequentially attempt at financing a single borrower under moral hazard. We show that restricting lenders to post take-it-or-leave-it offers involves a severe loss of generality: none of the equilibrium outcomes arising in this scenario survives if lenders offer menus of contracts. This result challenges the approach followed in standard models of multiple lending. From a theoretical perspective, we offer new insights on equilibrium robustness in sequential common agency games.

Keywords: Multiple Lending, Menus, Strategic Default, Common Agency, Bank Competition

JEL Classification: D43, D82, G33

Suggested Citation

Attar, Andrea and Casamatta, Catherine and Chassagnon, Arnold and Dechamps, Jean, On the Role of Menus in Sequential Contracting: A Multiple Lending Example (April 10, 2017). CEIS Working Paper No. 409. Available at SSRN: https://ssrn.com/abstract=2999841 or http://dx.doi.org/10.2139/ssrn.2999841

Andrea Attar (Contact Author)

Toulouse School of Economics

21, allée de Brienne
Toulouse, F 31000
France
+33 5 61128578 (Phone)

University of Roma Tor Vergata ( email )

2 Via Columbia
00100 Rome
Italy

Catherine Casamatta

TSE-University of Toulouse 1 ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Arnold Chassagnon

Paris School of Economics (PSE) ( email )

Jean Dechamps

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

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