Optimal Debt Contracts in Emerging Markets with Multiple Investors
|Author(s):|| prof. Ing. Karel Janda M.A., Dr., Ph.D., |
|Type:||Articles in refereed journals|
|ISSN / ISBN:|
|Published in:||Prague Economic Papers|
|Keywords:||Costly State Verification, Multiple Lenders, Debt, Emerging Markets, Supply Chains|
|JEL codes:||C72, D82, G33|
|Grants:||6FP- EU Food Industry Dynamics and Methodological Advances IES Research Framework Institutional task (2005-2011) Integration of the Czech economy into European union and its development|
|Abstract:||This paper extends the costly enforcement model of optimal financing to the case of investment projects financed by several lenders when the legal and economic situation in the emerging market economy does not allow for commitment to contracts and for securitization of credit contracts through use of collateral.
We consider the asymmetric situation when only one lender is a big strategic investor. All other lenders are small passive investors. We first provide the
sufficient and necessary condition for renegotiation proofness.
Then we show that the optimal verification is deterministic. We also discuss the conditions under which the optimal contract is a debt contract.
Our methodological framework may be used for example for the analysis of credit provision in food supply chains, where often many small non-strategic investors (small farm-level producers) interact with some big strategic investor (the advanced technology supplier) in the explicit or implicit crediting of some parts of food supply chain like the food processing plants or storage facilities.
Text of the paper