Too Little Lending: A Problem of Symmetric Information

David de Meza and Francesco Reito

MPRA Paper from University Library of Munich, Germany

Abstract: In a simple model of the consumer credit market, we show that asymmetric information may enhance welfare relative to full information. The advantage of hidden types is that solvency and default constraints are relaxed, allowing beneficial lending. Prohibiting the use of observable information may therefore be efficient. It is also shown that rather than the nature of borrower heterogeneity, whether asymmetric information involves adverse or advantageous selection depends on the magnitude of default costs. Even when selection is adverse, lending and welfare may be higher under asymmetric information than under symmetric information.

Keywords: consumer credit; overlending; credit rationing. (search for similar items in EconPapers)
JEL-codes: D40 D6 D8 H2 (search for similar items in EconPapers)
Date: 2019-05-06
New Economics Papers: this item is included in nep-bec, nep-mic and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/93700/1/MPRA_paper_93700.pdf original version (application/pdf)

Related works:
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:pra:mprapa:93700

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().