question 9 Consider the credit contract with collateral in the adverse selection problem from our class. The incentive compatibility constraint for the low risk type borrower states that obesvarad options a. The low risk type borrower is indifferent between applying for the low risk type credit contract and the high risk type credit contract. b. The low risk type borrower prefers applying for the low risk type credit contract over the non-participation c. The low risk type borrower only applies for the low risk type credit contract. d. The low risk type borrower derives higher utility than the risk type borrower.
question 9
Consider the credit contract with collateral in the adverse selection problem from our class. The incentive compatibility constraint for the low risk type borrower states that obesvarad
options
a. The low risk type borrower is indifferent between applying for the low risk type credit contract and the high risk type credit contract.
b. The low risk type borrower prefers applying for the low risk type credit contract over the non-participation
c. The low risk type borrower only applies for the low risk type credit contract.
d. The low risk type borrower derives higher utility than the risk type borrower.
question 10
According to Diamond and Dybvig (1983), why does a bank run happen?
options
a. Because banks can have a liquidity problem without being insolvent.
b. Because agents do not know their types at the beginning.
c. (economic) interest.
d. Because banks always need to borrow money to pay for the liquidity needs in period 1.
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