Asymmetric Information and Imperfect Competition in Lending Markets

Gregory S. Crawford, Nicola Pavanini and Fabiano Schivardi
Additional contact information
Gregory S. Crawford: University of Zürich, CEPR and CAGE
Nicola Pavanini: Tilburg University and CEPR

No 1712, EIEF Working Papers Series from Einaudi Institute for Economics and Finance (EIEF)

Abstract: We study the effects of asymmetric information and imperfect competition in the market for small business lines of credit. We estimate a structural model of credit demand, loan use, pricing, and firm default using matched firm-bank data from Italy. We find evidence of adverse selection in the form of a positive correlation between the unobserved determinants of demand for credit and default. Our counterfactual experiments show that while increases in adverse selection increase prices and defaults on average, reducing credit supply, banks’ market power can mitigate these negative effects.

Pages: 63 pages
Date: 2017, Revised 2017-10
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-com and nep-ent
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Asymmetric Information and Imperfect Competition in Lending Markets (2018)
Working Paper: Asymmetric Information and Imperfect Competition in Lending Markets (2015)
Working Paper: Asymmetric Information and Imperfect Competition in Lending Markets (2015)
Working Paper: Asymmetric information and imperfect competition in lending markets (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eie:wpaper:1712

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