On the Role of Menus in Sequential Contracting: A Multiple Lending Example
15 Pages Posted: 13 Jul 2017
Date Written: April 10, 2017
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