Abstract
The purpose of this note is to point out an error in an important paper by Sharpe [Journal of Finance 45 (1990)] on long-term bank–firm relationships and to provide a correct analysis of the problem. The model studies repeated lending under asymmetric information which leads to winner's-curse type distortions of competition. Contrary to the claims of Sharpe in [Journal of Finance 45 (1990)], this game only has an equilibrium in mixed strategies, which features a partial informational lock-in by firms and random termination of lending relationships.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have