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

Andrea Attar, Catherine Casamatta, Arnold Chassagnon, Jean P Dechamps
2017 Social Science Research Network  
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
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doi:10.2139/ssrn.2999841 fatcat:cx4vw3bqvzapxlbitn6nddxcni