Inefficiently Low Screening with Walrasian Markets

Kinda Hachem

No 20365, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Financial intermediaries devote resources to finding and screening borrowers before lending capital. By retaining only sufficiently good matches, informed lenders exacerbate adverse selection problems for others lending in the same market. Failure to internalize this implies that informed lenders are too selective in the matches they retain. The resulting under-use of capital pushes the cost of capital down, decreasing the benefit of being informed rather than uninformed and prompting a reallocation of resources from screening to matching. Compared to the constrained efficient allocation, the decentralized equilibrium has too little screening, too little informed credit, and too much uninformed credit.

JEL-codes: D62 D83 E44 (search for similar items in EconPapers)
Date: 2014-08
New Economics Papers: this item is included in nep-ban, nep-cse, nep-cta, nep-mac and nep-pbe
Note: CF EFG ME
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published as Kinda Hachem, 2020. "Inefficiently low screening with Walrasian markets," Journal of Monetary Economics, .

Downloads: (external link)
http://www.nber.org/papers/w20365.pdf (application/pdf)

Related works:
Journal Article: Inefficiently low screening with Walrasian markets (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:20365

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w20365

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().