Publication detail

Lender and Borrower as Principal and Agent

Author(s): prof. Ing. Karel Janda M.A., Dr., Ph.D.,
Type: IES Working Papers
Year: 2006
Number: 24
Published in: IES WP 24/2006
Publishing place: Prague
Keywords: Principal, Agent, Contracts, Credit, Adverse Selection, Moral Hazard
JEL codes: C72, D82, G21
Suggested Citation: Janda, K., (2006). “ Lender and Borrower as Principal and Agent ” IES Working Paper 24/2006, IES FSV. Charles University
Grants: IES Research Framework Institutional task (2005-2011) Integration of the Czech economy into European union and its development
Abstract: This paper provides a critical survey of some recent developments in the principal-agent approach to the relationship between lenders and borrowers. The costly state verification model of optimal debt contract is introduced and new results with respect to optimality of standard debt contracts in this model are discussed. Adverse selection in credit markets and its solution with a menu of screening contracts is described and the problems with collateral as a screening instrument are outlined. The dynamic relationship between the lender and borrower is introduced in a soft budget constraint model of default and bankruptcy decisions. Alternative assumptions about informational asymmetries in credit markets are presented as well. For all these topics a number of references from Czech and international economic literature is provided.
Downloadable: WP 2006_24_Janda


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