Niveau: Supérieur, Doctorat, Bac+8
Skin in the Game and Moral Hazard Gilles Chemla Imperial College, CNRS Paris-Dauphine, and CEPR. Christopher A. Hennessy London Business School, CEPR, and ECGI. October 2011 Abstract Should skin in the game be regulated in ABS markets? If so, why and how? To address these questions we develop a noisy rational expectations model where originators can exert e?ort ex ante and exploit interim private information in choosing retentions and tranching. In all unreg- ulated market equilibria, asymmetric information reduces di?erences in type-contingent interim payo?s, discouraging e?ort. Further, originators do not internalize bene?ts from signaling in facilitating e¢ cient risk-sharing across investors. E?ort can be induced by mandating high (interim-ine¢ cient) retentions, punishing low types. In the optimal separating regulation in- ducing e?ort, originators choose from a menu of junior tranche retention sizes. In the optimal pooling regulation inducing e?ort, all originators retain a single junior claim, with size depend- ing on price informativeness. The separating (pooling) regulation generally maximizes welfare if e¢ cient risk-sharing (bank investment) is the dominant concern. Mandated opacity is only optimal amongst mechanisms providing zero e?ort incentive. JEL Codes: G32, G28. Corresponding author (Hennessy): Regent?s Park, London, NW1 4SA, U.
- optimal separating
- optimal amongst
- cient risk-sharing
- ante e?ort
- vately optimal
- pooling regulation
- such unregulated equilibria
- interim payo?