Credit Rationing and Public Support of Commercial Credit

Karel Janda

CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague

Abstract: Credit contracting between a lender with monopoly market power and a small start-up entrepreneur may lead to the rejection of projects whose expected benefits are higher than their total costs. This inefficiency may be eliminated by government support in the form of credit guarantees or interest rate subsidies. This paper compares different forms of government support and concludes that credit guarantees and interest rate subsidies have a nonambiguous positive effect on social efficiency since they enable the financing of socially efficient projects which would not be financed otherwise. The comparison of government budget costs for these two types of government interventions depends on the institutional details and parametrization of the credit problem.

Keywords: credit; subsidy; guarantee (search for similar items in EconPapers)
JEL-codes: D82 G18 H25 (search for similar items in EconPapers)
Date: 2011-04
New Economics Papers: this item is included in nep-ban and nep-ppm
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Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:cer:papers:wp436

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