On the Role of Menus in Sequential Contracting: a Multiple Lending Example

Attar AndreaCasamatta CatherineChassagnon ArnoldDécamps Jean Paul
CEIS Research Paper
We study a capital market in which multiple lenders sequentially attempt at financing a single borrower under moral hazard. We show that restricting lenders to post take-it-or-leave-it offers involves a severe loss of generality: none of the equilibrium outcomes arising in this scenario survives if lenders offer menus of contracts. This result challenges the approach followed in standard models of multiple lending. From a theoretical perspective, we offer new insights on equilibrium robustness in sequential common agency games.
 

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Number: 409
Keywords: Multiple Lending, Menus, Strategic Default, Common Agency, Bank Competition
JEL codes: D43,D82,G33
Volume: 15
Issue: 6
Date: Thursday 13 July 2017
Revision Date: Thursday 13 July 2017