Optimal Rent Extraction in Pre-Industrial England and France – Default Risk and Monitoring Costs



APPENDIX

Proof of Proposition 1

The condition for a solution to the CA’s problem is

ψ = n-1 (1 + δ) - 2(1 - C) < 0.             (27)

For θ> 0 it is also necessary that

κ = n-1 (1 + δ) - 1 + c< 0.               (28)

Higher monitoring costs and default risk reduces the CA’s profit because

∂ Π*
d πnpv

∂δ

= <1   ‘¢2 KT < 0

(1 +δ)2ψ2

(29)

and

Π*

d πnpv

(1 — c τ

= -ə-----½2πτ < 0.

t(1 +δ)ψ2

(30)

∂c

The agent’s profit is increased since

π*
NPV _

∂C =

n — 1 (1
(n + 1)2

c) (1 + δ) τ

-----4 4∏τ > 0,
ψ
3t

(31)

and

1 c ¢2 τ

--ɪ4πτ > 0.

ψ3

∕9τΓ*

NPV

n1 (

_ _ _

(n + 1)2

(32)

∂δ

The debt finally is reduced due to an increase in the monitoring costs

and default risk because

dDebt    ()2 + (l+δ)2,∩   c,2, τ f.

(33)


(34)


~∂i~ = (-----ψ3-----)(1 - tt )2π0,

and

dDebt n — 1 2 (1 — C )(1 + δ) τ

—— = (----)2ʌ---1-^3----22πT < 0.

∂c n +1 tψ3

27



More intriguing information

1. Legal Minimum Wages and the Wages of Formal and Informal Sector Workers in Costa Rica
2. The name is absent
3. The Veblen-Gerschenkron Effect of FDI in Mezzogiorno and East Germany
4. Demographic Features, Beliefs And Socio-Psychological Impact Of Acne Vulgaris Among Its Sufferers In Two Towns In Nigeria
5. Strategic Planning on the Local Level As a Factor of Rural Development in the Republic of Serbia
6. Institutions, Social Norms, and Bargaining Power: An Analysis of Individual Leisure Time in Couple Households
7. The name is absent
8. The duration of fixed exchange rate regimes
9. IMMIGRATION AND AGRICULTURAL LABOR POLICIES
10. The name is absent