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Debt Rescheduling with Multiple Lenders: Relying on the Information of Others
Author(s) -
Fluet Claude,
Garella Paolo G.
Publication year - 2014
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/ecca.12099
Subject(s) - private information retrieval , constraint (computer aided design) , debt , bayesian game , bayesian probability , foreclosure , business , economics , microeconomics , actuarial science , game theory , computer science , finance , repeated game , computer security , artificial intelligence , mechanical engineering , engineering
Are multiple‐lender loans rescheduled more or less often than single‐lender loans? Do multiple lenders react efficiently to new information? Our analysis emphasizes the role of the precision of information: lenders trade off benefits from immediate foreclosure against expected benefits of waiting for other lenders to act, given the likelihood that other lenders’ information is more precise. We analyse a Bayesian game where signals distributed to lenders may differ in precision and content. Equilibria display excessive liquidation or excessive rescheduling, depending on the likelihood of information. Outcomes are nevertheless second‐best, given the constraint that private information cannot be merged.