Optimum pricing of mutual guarantees for credit

Yoram Kroll; Assaf Cohen

doi:10.1007/s11187-012-9430-3

Optimum pricing of mutual guarantees for credit

Yoram Kroll^*, Assaf Cohen

^*Corresponding author for this work

BA Business Department

Research output: Contribution to journal › Article › peer-review

6 Scopus citations

Abstract

The main finding of this paper is that under financial market impediments and asymmetric information, a mutually guaranteed and correctly schemed and priced insurance credit contract should have an abnormal actuarial profit. Such a contract improves welfare by simultaneously eliminating underinvestment (UI) and overinvestment (OI) and by reducing the probability of the insurer's ruin. This solution is relevant for mutual credit insurance agencies and international or governmental agencies interested in increasing the value creation of small and medium enterprises that suffer from limited access to equity and debt markets.

Original language	English
Pages (from-to)	253-262
Number of pages	10
Journal	Small Business Economics
Volume	41
Issue number	1
DOIs	https://doi.org/10.1007/s11187-012-9430-3
State	Published - Jun 2013

Keywords

Asymmetric information
Credit insurance
Moral hazard
Mutual guarantees
Overinvestment (OI)
SME
Underinvestment (UI)

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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10.1007/s11187-012-9430-3

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KW - Overinvestment (OI)

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Optimum pricing of mutual guarantees for credit

Abstract

Keywords

UN SDGs

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