Relying on the information of others : debt rescheduling with multiple lenders

Can debt rescheduling be affected by the multiplicity of lenders in loan arrangements? Do lenders efficiently react to information? We show that the precision of information plays an essential role. Foreclosing by one lender is disruptive and may have irreversible consequences. A lender can therefore rationally reschedule his loan if he expects that other lenders may receive more precise information. We develop a Bayesian game where signals are randomly distributed to lenders and rescheduling occurs even when all lenders receive bad news. This is ex post inefficient, but we show that it may be a second-best outcome given the non-sharing of private information. Our results bear a similarity with herding phenomena in financial markets, although players do not move sequentially