Short-Term Contracts as a Monitoring Device / Patrick Rey, Joseph E. Stiglitz.

Format:

Book

Author/Creator:

Rey, Patrick.

Contributor:

National Bureau of Economic Research.

Stiglitz, Joseph E.

Series:

Working Paper Series (National Bureau of Economic Research) no. w4514.

NBER working paper series no. w4514

Language:

English

Subjects (All):

Contracts--Econometric models.

Contracts.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1993.

Cambridge, Massachusetts : National Bureau of Economic Research, 1993.

Summary:

This paper focuses on two separate problems. The first is that frequently, the most profitable use of funds involves long-term investments, which militiates for long-term debt contracts. The second problem is to monitor the investor's use of funds, as exemplified by the U.S. S&L saga, and we argue that short-term debt provides investors, who can withdraw their funds, with a real threat over firms. We show that short-term investors have both desirable incentives to exert control and invest in monitoring, and that this monitoring concern provides an explanation of the often lamented disparity between the maturity of banks' assets and liabilities. We also explore in detail the trade-off between long-term and short-term debt, including the possibility of multiple contracts and of priority rules.

Notes:

Print version record

October 1993.