Multiple Lending and Constrained Efficiency in the Credit Market

32 Pages Posted: 30 May 2005

See all articles by Andrea Attar

Andrea Attar

Toulouse School of Economics; University of Roma Tor Vergata

Eloisa Campioni

University of Rome Tor Vergata - Dept. of Economics and Finance

Gwenael Piaser

Universite du Luxembourg

Abstract

This paper studies the relationship between competition and incentives in an economy with financial contracts. We concentrate on non-exclusive credit relationships, those where an entrepreneur can simultaneously accept more than one contractual offer. Several homogeneous lenders compete on the contracts they offer to finance the entrepreneur's investment project. We model a common agency game with moral hazard, and we characterize its equilibria. As expected, notwithstanding the competition among the principals (lenders), non-competitive outcomes can be supported. In particular, positive profit equilibria are pervasive. We then provide a complete welfare analysis and show that all equilibrium allocations turn out to be constrained Pareto efficient.

Keywords: Common Agency, Financial Markets, Efficiency

JEL Classification: D4, D6, G2

Suggested Citation

Attar, Andrea and Campioni, Eloisa and Piaser, Gwenael, Multiple Lending and Constrained Efficiency in the Credit Market. University Ca' Foscari of Venice, Dept. of Economics Research Paper Series No. 29/06. Available at SSRN: https://ssrn.com/abstract=729927 or http://dx.doi.org/10.2139/ssrn.729927

Andrea Attar

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

Eloisa Campioni

University of Rome Tor Vergata - Dept. of Economics and Finance ( email )

Italy

Gwenael Piaser (Contact Author)

Universite du Luxembourg ( email )

148, avenue de la Faïencerie
Luxembourg, L-1511
Luxembourg
+ 352 46 66 44 6811 (Fax)

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