| 简介： | The paper studies an optimal mechanism design problem in the presence of limited enforcement. Namely, the bank (principal) cannot prevent borrowing fi rm (agent) from consuming acquired fund without producing. The impediment of forming contract creates an endogenous outside option to all agent borrowers. We show that in the optimal mechanism, loan sizes for higher types are shrunk by ironing, i.e. pooling on the top. Meanwhile, the lower productivitity firms enjoy production at the same levels as second best environment, and fi rms' participation is independent of enforcement level. Moreover, we show that limited enforcement may also result in limited commitment, which requires credit rationing to be implimented by the principal and monotonicity in loan sizes may not hold. |