Objectives and incentives in financial markets

This dissertation is a collection of papers investigating objectives and incentives in financial markets. The first essay (Chapter 2) deals with the endogenous determination of credit history, credit-worthiness, loans and efforts by borrowers over time. A financial market with adverse selection and moral hazard is analyzed. Facing the adverse selection, lenders are not able to offer separate contracts to different types of borrowers. However, knowing borrowers' credit histories, lenders are able to assign different credit worthiness to borrowers that have different credit histories, and offer different contracts to different groups. It is shown that if borrowers' credit rating is too low, they make low effort to repay their debts. As a borrower acquires a good credit history and has his credit-rating upgraded above a certain point, it becomes worthwhile for him to choose high effort. A low quality borrower may make high effort in early periods in order to build up a good credit history and obtain better terms in the future contracts then shift back to the low effort even though his project continues to succeed when he approaches the end of his life.

Name thesis:degree_name

Ph. D.

Level thesis:degree_level

doctoral

Discipline thesis:degree_discipline

Economics

Department dc:contributor.department

Economics

Grantor dc:publisher

Virginia Tech

Year dc:date.issued

1994

Author dc:creator

• Liu, Chung-shu

Chair dc:contributor.committeechair

• Haller, Hans H.

Committee members dc:contributor.committeemember

• Eckel, Catherine C.
• Gilles, Robert P.
• Kats, Amoz
• Wang, Yong

Statement dc:rights

• In Copyright

Licence dc:rights.uri

• http://rightsstatements.org/vocab/InC/1.0/

Language dc:language.iso

en

Dc Identifier Other

etd-10242005-174015

OAI identifier oai:identifier

oai:vtechworks.lib.vt.edu:10919/40155