Collateral vs. Project Screening: A Model of Lazy Banks

Michael Manove, A. Jorge Padilla () and Marco Pagano
Additional contact information
A. Jorge Padilla: CEMFI and CEPR

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: Many argue that the primary function of banks is to provide cheap credit, and to this effect advocate strict protection of creditor rights. But banks serve another important function: through project screening, they can improve the allocation of capital across projects. In this paper we show that, in the presence of informational asymmetries, strong creditor protection may lead to competitive market equilibria where banks, protected by high collateral, perform an inefficiently low level of screening. Restrictions on collateral requirements and protection of debtors in bankruptcy may thus increase credit market efficiency.

JEL-codes: D8 G2 K2 (search for similar items in EconPapers)
Date: 1998-11-01
New Economics Papers: this item is included in nep-mic
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Citations: View citations in EconPapers (54)

Published in RAND Journal of Economics, Vol. 32, No. 4, Winter, 2001

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Related works:
Working Paper: Collateral Vs. Project Screening: A Model Of Lazy Banks (2000)
Working Paper: Collateral Vs. Project Screening: A Model of Lazy Banks (1998)
Working Paper: Collateral vs. Project Screening: a Model of Lazy Banks (1998)
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:10

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