Centre for Development Economics
and
Department of Economics, Delhi School of Economics
ANNOUNCE A SEMINAR
Time-Inconsistency, Renegotiation, and Firm Ownership?
by
Karna Basu
Hunter College, City University of New York
Thursday, 10th January 2013 at 3:00 PM
Venue : Seminar Room (First Floor)
Department of Economics, Delhi School of Economics
All are cordially invited
Abstract
We examine lending contracts in the context of (a) time-inconsistency & renegotiation, and (b) governance & market structure. We argue that consumer protection should be more broadly defined to include a dynamic commitment problem–in particular, when the consumer is time-inconsistent, how does a bank commit to not renegotiate the terms of the contract? We show how, when there are strategically behaving time-inconsistent agents and profit-minded lenders, lenders might choose nonprofit status as a way to credibly offer commitment. We show how the firms’ ability to commit through nonprofit status depends on the exclusivity of contracts and degree of competition (perfect competition can be good or bad, depending on exclusivity).