A model of contract guarantees for credit-sensitive, opaque financial intermediaries
By: Robert C. Merton
Contributors: Harvard Business School. Division of Research
Series: Working paper / Division of Research, Harvard Business School -- 97-091; Working paper (Harvard Business School. Division of Research) -- 97-091
Publisher: Division of Research, Harvard Business School
Published: 1997
Place of publication: Boston
Language: eng
Number of pages: 11
Description: The effective delivery of many financial services depends critically on the credit-worthiness of the provider financial institution. The shared credit standing of the institution's individual businesses can therefore cause a significant failure of the principle of "value-additivity" which complicates decentralization of the capital budgeting and financial decisions. This paper addresses this complexity with a model of incentive contracts as a substitute for direct monitoring of the institution.
Notes: "May 21, 1997."

Includes bibliographical references.