A Debt Contract Is Incentive Compatible

question 87

Multiple Choice

A debt contract is incentive compatible

• A)if the borrower has the incentive to behave in the way that the lender expects and desires,since doing otherwise jeopardizes the borrower's net worth in the business.
• B)if the borrower's net worth is sufficiently low so that the lender's risk of moral hazard is significantly reduced.
• C)if the debt contract is treated like an equity.
• D)if the lender has the incentive to behave in the way that the borrower expects and desires.

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Definitions:

Social Neuroscience

A field that explores the neural, hormonal, cellular, and genetic mechanisms underlying the social structures, processes, and behaviors.

Brain Imaging

Techniques used to visualize the structure or function of the brain, such as MRI or fMRI, for research or diagnostic purposes.

Neuroscience Methods

Techniques and tools used in the field of neuroscience to study the structure, function, development, genetics, biochemistry, physiology, and pathology of the nervous system.

Social Cognition

Social cognition is the process by which people process and interpret information about themselves and others in the social world.