Security design without verifiable retention

• 成果类型: Article
• 署名作者: Li, Qi
• 署名单位: Pennsylvania Commonwealth System of Higher Education (PCSHE); Pennsylvania State University; Pennsylvania State University - University Park
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2021.105381
• 发表日期: 2022
• 关键词: Competitive search; adverse selection; market segmentation; TRANSPARENCY; Residential mortgage-backed security; Collateralized debt obligation

摘要

This paper studies security design with adverse selection when verifiable retention is impossible due to market segmentation and price opacity across market segments. Rather than signaling through retention, sellers in the model signal quality through posted prices, which is feasible because the posted price affects buyers' search behavior and the equilibrium probability of selling. The optimal security design, in this case, is to break up the cash flow of an asset into several debt securities of increasing seniority. The size of senior relative to subordinated debts is affected by the equilibrium markup. Search frictions, as determinants of the markup, shape the endogenous creation of financial securities. (c) 2021 Elsevier Inc. All rights reserved.