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

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: 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