Asymmetric information and imperfect competition in lending markets

Gregory Crawford, Nicola Pavanini and Fabiano Schivardi

No 192, ECON - Working Papers from Department of Economics - University of Zurich

Abstract: We measure the consequences of asymmetric information and imperfect competition in the Italian lending market. We show that banks' optimal price response to an increase in adverse selection varies with competition. Exploiting matched data on loans and defaults, we estimate models of demand for credit, loan use, pricing, and firm default. We find evidence of adverse selection and evaluate its importance. While indeed prices rise in competitive markets and decline in concentrated ones, the former effect dominates, suggesting that while market power can mitigate the adverse effects of asymmetric information, mainstream concerns about its effects survive with imperfect competition.

Keywords: Asymmetric information; imperfect competition; lending markets; Italian banking; adverse selection (search for similar items in EconPapers)
JEL-codes: D82 G21 L13 (search for similar items in EconPapers)
Date: 2015-04
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-com and nep-cta
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Citations: View citations in EconPapers (6)

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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 (2017)
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:zur:econwp:192

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