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Unformatted text preview: oer to the investor at equilibrium. (3) Assume now that the rm also has the possibility of pledging some assets as collateral for the loan: if the rm makes 0 prot, an asset of value K to the entrepreneur is transfered to the creditor whose valuation for the asset is x.K , with x < 1. The size of the collateral pledged to the investor is a choice variable for the entrepreneur. (a) Intuitively, why would collateral pledging be an ecient signaling de-vice in this context? (b) Find the separating equilibrium that provides the H type entrepreneur with the highest utility. (c) Find the pooling equilibrium that provides the H type entrepreneur with the highest utility. (d) When is it the case that the high type entrepreneur prefers the pooling equilibrium of question 3.c to the separating equilibrium of question 3.b? How does it depend on and x ? Discuss. 1...
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- Spring '08