Single or Menu Contracting: An application of the Hersanyi Model to Mudaraba Financing
In Islamic banking, the offering of a Mudaraba contract to a privately informed agent results in adverse selection. In incentive theory, a hypothesis is that the seller, in our case the Islamic bank, may offer different menu of contracts to separate non-efficient agents from the efficient ones. To t...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
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EconJournals
2016-03-01
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| Series: | International Journal of Economics and Financial Issues |
| Subjects: | |
| Online Access: | https://dergipark.org.tr/tr/pub/ijefi/issue/32008/353672?publisher=http-www-cag-edu-tr-ilhan-ozturk |
| _version_ | 1797923437602144256 |
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| author | Adil EL Fakir Mohamed Tkiouat |
| author_facet | Adil EL Fakir Mohamed Tkiouat |
| author_sort | Adil EL Fakir |
| collection | DOAJ |
| description | In Islamic banking, the offering of a Mudaraba contract to a privately informed agent results in adverse selection. In incentive theory, a hypothesis is that the seller, in our case the Islamic bank, may offer different menu of contracts to separate non-efficient agents from the efficient ones. To test this hypothesis, we apply a game theory approach using an incomplete information model combined with an adverse selection index. From a rational point of view a bank would like to offer a higher type contract to an efficient agent to get higher rewards. Under an asymmetric case, however, we found evidence that in some cases offering a lower type contract can result in higher social value. Menu offering is found not to be the ultimate solution for agent’s types’ separation. |
| first_indexed | 2024-04-10T14:46:22Z |
| format | Article |
| id | doaj.art-f1fbfc1901a447c6bf85a7e933bd005f |
| institution | Directory Open Access Journal |
| issn | 2146-4138 |
| language | English |
| last_indexed | 2024-04-10T14:46:22Z |
| publishDate | 2016-03-01 |
| publisher | EconJournals |
| record_format | Article |
| series | International Journal of Economics and Financial Issues |
| spelling | doaj.art-f1fbfc1901a447c6bf85a7e933bd005f2023-02-15T16:07:53ZengEconJournalsInternational Journal of Economics and Financial Issues2146-41382016-03-01612212301032Single or Menu Contracting: An application of the Hersanyi Model to Mudaraba FinancingAdil EL FakirMohamed TkiouatIn Islamic banking, the offering of a Mudaraba contract to a privately informed agent results in adverse selection. In incentive theory, a hypothesis is that the seller, in our case the Islamic bank, may offer different menu of contracts to separate non-efficient agents from the efficient ones. To test this hypothesis, we apply a game theory approach using an incomplete information model combined with an adverse selection index. From a rational point of view a bank would like to offer a higher type contract to an efficient agent to get higher rewards. Under an asymmetric case, however, we found evidence that in some cases offering a lower type contract can result in higher social value. Menu offering is found not to be the ultimate solution for agent’s types’ separation.https://dergipark.org.tr/tr/pub/ijefi/issue/32008/353672?publisher=http-www-cag-edu-tr-ilhan-ozturkmudaraba self-selection mechanism adverse selection index frequency of due diligence islamic venture capitalist incomplete information |
| spellingShingle | Adil EL Fakir Mohamed Tkiouat Single or Menu Contracting: An application of the Hersanyi Model to Mudaraba Financing International Journal of Economics and Financial Issues mudaraba self-selection mechanism adverse selection index frequency of due diligence islamic venture capitalist incomplete information |
| title | Single or Menu Contracting: An application of the Hersanyi Model to Mudaraba Financing |
| title_full | Single or Menu Contracting: An application of the Hersanyi Model to Mudaraba Financing |
| title_fullStr | Single or Menu Contracting: An application of the Hersanyi Model to Mudaraba Financing |
| title_full_unstemmed | Single or Menu Contracting: An application of the Hersanyi Model to Mudaraba Financing |
| title_short | Single or Menu Contracting: An application of the Hersanyi Model to Mudaraba Financing |
| title_sort | single or menu contracting an application of the hersanyi model to mudaraba financing |
| topic | mudaraba self-selection mechanism adverse selection index frequency of due diligence islamic venture capitalist incomplete information |
| url | https://dergipark.org.tr/tr/pub/ijefi/issue/32008/353672?publisher=http-www-cag-edu-tr-ilhan-ozturk |
| work_keys_str_mv | AT adilelfakir singleormenucontractinganapplicationofthehersanyimodeltomudarabafinancing AT mohamedtkiouat singleormenucontractinganapplicationofthehersanyimodeltomudarabafinancing |