The near impossibility of credit rationing

David de Meza and David C. Webb

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Equilibrium credit rationing in the sense of Stiglitz and Weiss (1981) implies the marginal cost of funds to the borrower is infinite. So borrowers have an overwhelming incentive to cut their loan by a dollar and thereby avoiding being rationed. Ways of doing this include scaling down the project, cutting consumption or infinitesimally delaying the project to accumulate more saving. All of these routes are normally feasible in which case credit rationing is impossible.

JEL-codes: G30 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2003-05-22
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http://eprints.lse.ac.uk/24858/ Open access version. (application/pdf)

Related works:
Working Paper: The Near Impossibility of Credit Rationing (2003)
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