Long Term Debt with Hidden Borrowing

UPF Economics and Business Working Paper 803

34 Pages Posted: 16 Nov 2005

See all articles by Vicente Cuñat

Vicente Cuñat

London School of Economics & Political Science (LSE) - Financial Markets Group

Heski Bar-Isaac

University of Toronto - Rotman School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: January 2005

Abstract

We consider borrowers with the opportunity to raise funds from a competitive baking sector, that shares information about borrowers, and an alternative hidden lender. We highlight that the presence of the hidden lender restricts the contracts that can be obtained from the banking sector and that in equilibrium some borrowers obtain funds from both the banking sector and the (inefficient) hidden lender simultaneously. We further show that as the inefficiency of the hidden lender increases, total welfare decreases. By extending the model to examine a partially hidden lender, we further highlight the key role of information.

Keywords: G21, G33, D14

JEL Classification: Hidden Borrowing, Informal Lenders, Borrower Scree

Suggested Citation

Cuñat, Vicente and Bar-Isaac, Heski, Long Term Debt with Hidden Borrowing (January 2005). Available at SSRN: https://ssrn.com/abstract=849388 or http://dx.doi.org/10.2139/ssrn.849388

Vicente Cuñat (Contact Author)

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

Houghton Street
London WC2A 2AE
United Kingdom

HOME PAGE: http://www.vicentecunat.com

Heski Bar-Isaac

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416 978 3626 (Phone)

HOME PAGE: http://https://sites.google.com/site/heskibarisaac/home

Register to save articles to
your library

Register

Paper statistics

Downloads
37
Abstract Views
593
PlumX Metrics