kaal:claim:3405660-002

Moral hazard in hedge fund lending persists even when the lender is fully informed, because high enforcement costs can make prevention too costly for the lender.

Moral hazard can also occur because high enforcement costs might make it too costly for the lenders to hedge funds to prevent moral hazard even when the lender is fully informed about the hedge fund's activities.

Kaal, Indirect Regulation of Hedge Funds (2019), I. Introduction, p. 4
https://ssrn.com/abstract=3405660 · source PDF

Kaal, Indirect Regulation of Hedge Funds (2019). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3405660

• lender to hedge fund relationship
• enforcement costs are high relative to expected loss

mechanismsupport: arguedrisk-and-incentivescomplianceprivate-fundsdefi

• extends kaal:claim:1806252-013 Because banks expect to be bailed out with taxpayer funds, they may have less incentive to monitor their hedge...

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