 When do we have borrower or credit volume rationing in competitive credit market with imperfect information?Daniel Kraus No 117, Thuenen-Series of Applied Economic Theory from University of Rostock, Institute of Economics Abstract: This paper examines the conditions for credit volume or borrower rationing in a competitive credit market in which the project characteristics are private information of the borrowers. There can only be credit volume rationing if the higher-risk credit applicants have a higher return in the event of a project success than the lower-risk credit applicants. Then the higher-risk borrowers are not rationed and obtain the social efficient credit volume. If the incentive compatibility constraint of the higher risk borrowers is binding, the lower-risk borrowers are credit volume rationed such that the constraint holds as an equation. If credit volume rationing is not sufficient to separate the borrower types, there is additionally a rationing of the low-risk borrowers. If the low-risk borrowers prefer a pooling to a separating contract, then there will not be a Cournot-Nash separating equilibrium, but a Wilson and a Grossmann pooling equilibrium. Keywords: Credit rationing; Credit Size; Loan; Asymmetric Information; Adverse Selection; Non-linear optimization (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:zbw:roswps:117 Access Statistics for this paper More papers in Thuenen-Series of Applied Economic Theory from University of Rostock, Institute of Economics Contact information at EDIRC. |
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