Adil ELFakir
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A multiagent game theoretical approach to adverse selection in corporate financing
Investment Management and Financial Innovations Volume 13, 2016 Issue #2 (cont. 2) pp. 292-299
Views: 1636 Downloads: 244 TO CITEIn this research the authors tried to solve the adverse selection problem in the Mudaraba contracts with respect to the projects privately known prospects. The authors introduced a model of two contracts characterized by an adverse selection index for each contract. They have managed to find that a case of market breakdown can occur because the efficient agent might mimic the inefficient agent. The authors, then, managed to develop a ‘Mimicking Likelihood Index’ whereby one can infer whether a type of an agent has a tendency to mimic the other type. In the same context, the authors developed a “Relative Adverse Selection” index to measure which type of agents has more tendencies to select a specific type of contracts. These findings should help Islamic financial institutions in their agent selection process and hedge its risky Mudaraba contracts
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