Faure-Grimaud, Antoine and Mariotti, Thomas (1999) Optimal Debt Contracts and the Single-Crossing Condition. Economics Letters, 65 (1). pp. 85-89.

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Official URL : http://tse-fr.eu/pub/3416


We argue that standard results proving that debt contracts can be obtained as the solution of an ex post adverse selection problem are derived without borrowers’ preferences satisfying a proper single crossing condition. For a simple example where this condition is restored, we show that the optimal financial contract is not a standard debt contract, but rather an option contract. This casts some doubts on the robustness of existing results.

Item Type: Article
Language: English
Date: October 1999
Refereed: Yes
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 18 Jan 2012 05:50
Last Modified: 02 Apr 2021 15:34
OAI Identifier: oai:tse-fr.eu:3416
URI: https://publications.ut-capitole.fr/id/eprint/1878
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