Economics, Econometrics and Finance
4 years ago

Non-exclusive contracts lead to inefficient financial intermediaries and suboptimal outcomes.

1 view
RePEc: Research Papers in Economics
Moral hazard and non-exclusive contracts
Alberto Bisin, Danilo Guaitoli

Paper Summary

The article explores how financial intermediaries interact in economies with hidden actions, where contracts are non-exclusive. In this setup, equilibrium contracts are inefficient and do not lead to optimal actions. When contracts do lead to optimal actions, intermediaries profit, but the economy remains inefficient due to contract constraints.

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