Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/211961 
Year of Publication: 
2003
Series/Report no.: 
Bank of Finland Discussion Papers No. 28/2003
Publisher: 
Bank of Finland, Helsinki
Abstract: 
Many adverse selection models of standard one-period debt contracts are based on the following seemingly innocuous assumptions.First, entrepreneurs have private information about the quality of their return distributions.Second, return distributions are ordered by the monotone likelihood-ratio property.Third, financiers payoff functions are restricted to be monotonically non-decreasing in firm profits.Fourth, financial markets are competitive.We argue that debt is not an optimal contract in these models if there is only one (monopoly) financier rather than an infinite number of competitive financiers.
Persistent Identifier of the first edition: 
ISBN: 
952-462-094-4
Document Type: 
Working Paper

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