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topic10_pres - EC372 Bond and Derivatives Markets Financial...

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Unformatted text preview: EC372 Bond and Derivatives Markets Financial Intermediation, II R. E. Bailey Department of Economics University of Essex University week 25 EC372 Bond and Derivatives Markets Financial Intermediation, II Topic #10 Outline 1 Financial Intermediation as Delegated Monitoring Principal-Agent relationships 2 The Holmstrom & Tirole (HT) Model 3 Fixed Investment Direct finance Indirect finance Interpretation Credit Market Equilibrium 4 Variable Investment Reading: Lecture notes (available online in the CMR) EC372 Bond and Derivatives Markets Financial Intermediation, II Topic #10 Outline Financial Intermediation as Delegated Monitoring Delegated Monitoring I Investors delegate responsibility for monitoring borrowers to intermediaries. I Aspects of delegated monitoring: 1 Screening assess borrowers creditworthiness 2 Prevention check borrowers behaviour 3 Auditing penalise borrowers misbehaviour EC372 Bond and Derivatives Markets Financial Intermediation, II Topic #10 Outline Financial Intermediation as Delegated Monitoring Delegated Monitoring I Investors delegate responsibility for monitoring borrowers to intermediaries. I Aspects of delegated monitoring: 1 Screening assess borrowers creditworthiness 2 Prevention check borrowers behaviour 3 Auditing penalise borrowers misbehaviour EC372 Bond and Derivatives Markets Financial Intermediation, II Topic #10 Outline Financial Intermediation as Delegated Monitoring Delegated Monitoring I Investors delegate responsibility for monitoring borrowers to intermediaries. I Aspects of delegated monitoring: 1 Screening assess borrowers creditworthiness 2 Prevention check borrowers behaviour 3 Auditing penalise borrowers misbehaviour EC372 Bond and Derivatives Markets Financial Intermediation, II Topic #10 Outline Financial Intermediation as Delegated Monitoring Delegated Monitoring I Investors delegate responsibility for monitoring borrowers to intermediaries. I Aspects of delegated monitoring: 1 Screening assess borrowers creditworthiness 2 Prevention check borrowers behaviour 3 Auditing penalise borrowers misbehaviour EC372 Bond and Derivatives Markets Financial Intermediation, II Topic #10 Outline Financial Intermediation as Delegated Monitoring Delegated Monitoring I Investors delegate responsibility for monitoring borrowers to intermediaries. I Aspects of delegated monitoring: 1 Screening assess borrowers creditworthiness 2 Prevention check borrowers behaviour 3 Auditing penalise borrowers misbehaviour EC372 Bond and Derivatives Markets Financial Intermediation, II Topic #10 Outline Financial Intermediation as Delegated Monitoring Principal-Agent relationships Principal-Agent theory: a sketch I The principal seeks to control the actions of an agent in the interests of the principal....
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topic10_pres - EC372 Bond and Derivatives Markets Financial...

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