Title page for ETD etd-10242005-174015


Type of Document Dissertation
Author Liu, Chung-shu
URN etd-10242005-174015
Title Objectives and incentives in financial markets
Degree PhD
Department Economics
Advisory Committee
Advisor Name Title
Haller, Hans H. Committee Chair
Eckel, Catherine C Committee Member
Gilles, Robert P. Committee Member
Kats, Amoz Committee Member
Wang, Yong Committee Member
Keywords
  • Finance Mathematical models.
Date of Defense 1994-04-15
Availability restricted
Abstract

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.

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