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.
Multiple Lending; Menus; Strategic Default; Common Agency; Bank Competition;
- D43: Oligopoly and Other Forms of Market Imperfection
- D82: Asymmetric and Private Information • Mechanism Design
- G33: Bankruptcy • Liquidation
Andrea Attar, Catherine Casamatta, Arnold Chassagnon, and Jean-Paul Décamps, “Contracting Sequentially with Multiple Lenders: the Role of Menus”, Journal of Money, Credit and Banking, vol. 51, n. 4, June 2019, pp. 977–990.
Journal of Money, Credit and Banking, vol. 51, n. 4, June 2019, pp. 977–990