A model of contract guarantees for credit-sensitive, opaque financial intermediaries

Description

"The effective delivery of many financial services depends critically on the credit-worthiness of the provider financial institution. The shared credit standing of the institution's individual businesses can therefore cause a significant failure of the principle of \"value-additivity\" which complicates decentralization of the capital budgeting and financial decisions. This paper addresses this complexity with a model of incentive contracts as a substitute for direct monitoring of the institution."

Subjects

Series Statement

• Working paper / Division of Research, Harvard Business School -- 97-091