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Mathematical Problems in Engineering
Volume 2014 (2014), Article ID 930271, 6 pages
http://dx.doi.org/10.1155/2014/930271
Research Article

Agent or Borrower? An Incentive of Moral Hazard with China Commercial Guarantee Company

1College of Management and Economics, Tianjin University, Tianjin 300072, China
2China Center for Social Computing and Analytics, Tianjin University, Tianjin 300072, China

Received 26 December 2013; Accepted 16 February 2014; Published 23 March 2014

Academic Editor: Fenghua Wen

Copyright © 2014 Feng He et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

This paper studies the behavior of commercial guarantee company in the game theory framework. Different payoff structures with guarantee company behavior for banks, borrowers, and the guarantors are formed in the presence of credit rationing. We derived and explained the surviving rule of different types of guarantee companies, and we further conclude the condition in which guarantee companies are likely to be involved in a moral hazard problem. We conclude that, in the presence of regulatory arbitrage opportunity, the guarantee company has incentive to switch its role from bank agent to the borrower, being a second-hand lender. When the macroeconomic risk is high, the switching of this role will transfer the risk back to the banks.