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- W2168862187 abstract "We propose a model in which an optimal dynamic financing contract for a cash-constrained entrepreneur is a credit line with a growing credit limit. This simple contract, which resembles those used in practice, presents a good benchmark to understand dynamic moral hazard and adverse selection. In our setting the moral hazard problem is that the agent, who privately observes stochastic cash flows, can manipulate them using hidden savings. The adverse selection problem is that only the agent initially knows the quality of the project. It is appealing that the credit line is an incomplete contract: it does not spell out the agent's actions, but gives him full discretion to draw and deposit funds up until the credit limit. The agent has incentives to use discretion in a way that is optimal for the principal." @default.
- W2168862187 created "2016-06-24" @default.
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- W2168862187 date "2006-01-01" @default.
- W2168862187 modified "2023-09-26" @default.
- W2168862187 title "Agency Problems, Screening and Increasing Credit Lines. †" @default.
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