Why does the free-rider problem occur in the debt market?
What will be an ideal response?
Restrictive covenants can reduce moral hazard but they must be monitored and enforced to be effective. If bondholders know that other bondholders are monitoring and enforcing the restrictive covenants, they can free ride. Other bondholders will follow suit resulting in not enough resources devoted to monitoring and enforcing restrictive covenants.
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Refer to the table above. If the rental price of machines is $100 per day, up to how many machines should the firm rent to maximize profits?
A) 4 B) 5 C) 6 D) 7
Under what circumstances are the marginal expenditure for an input and the average expenditure always equal? Where there is a
A) competitive buyer. B) competitive seller. C) monopoly buyer. D) monopoly seller.
A good with a high income elasticity is generally considered to be
a. an inferior good. b. a luxury good. c. a necessity. d. inexpensive, relative to other goods.
Horizontal differentiation makes products better for some consumers and worse for others.
Answer the following statement true (T) or false (F)