Paper #803

Título:

Long term debt with hidden borrowing

Autores:

Heski Bar-Isaac y Vicente Cuñat

Data:

Enero 2005

Resumen:

We consider borrowers with the opportunity to raise funds from a competitive baking sector, that shares information about borrowers, and an alternative hidden lender. We highlight that the presence of the hidden lender restricts the contracts that can be obtained from the banking sector and that in equilibrium some borrowers obtain funds from both the banking sector and the (inefficient) hidden lender simultaneously. We further show that as the inefficiency of the hidden lender increases, total welfare decreases. By extending the model to examine a partially hidden lender, we further highlight the key role of information.

Palabras clave:

Hidden Borrowing, Informal Lenders, Borrower Screening, Long Term Debt

Códigos JEL:

G21, G33, D14

Área de investigación:

Economía de la Empresa y Organización Industrial

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