Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/268755 
Authors: 
Year of Publication: 
2023
Series/Report no.: 
ILE Working Paper Series No. 69
Publisher: 
University of Hamburg, Institute of Law and Economics (ILE), Hamburg
Abstract: 
Easing their access to capital markets, governments have been establishing a primary dealer system. Via bilateral self-enforcing agreements ('dealerships'), government debt management units (DMUs) have been appointing national and global banks (the 'dealers') to actively participate in government securities auctions and/or enhance liquidity in the secondary market. The partnership's non-binding and long-run nature makes dealerships relational contracts. Developing a theoretical framework, this study examines the DMU-dealer principal-agent relationship, with the overarching purpose of identifying and mitigating agency costs. Apart from monitoring costs, the article argues that the partnership entails institutional room for public-private collusion. Although the practice would help fostering the partnership's longevity, it could trigger negative externalities. Mitigating potential risks, policy proposals advocate to enhance: (i) monitoring of the dealers' behaviour in fixed income markets, and (ii) transparency in the DMU's governance of industry's benefits.
Subjects: 
public finance
government debt management
relational contracts
agency costs
dealers
JEL: 
H63
K12
L14
L51
Document Type: 
Working Paper

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