Asymmetric Information and Imperfect Competition in Lending Markets

Gregory S. Crawford, Nicola Pavanini and Fabiano Schivardi

American Economic Review, 2018, vol. 108, issue 7, 1659-1701

Abstract: We study the effects of asymmetric information and imperfect competition in the market for small business lines of credit. We estimate a structural model of credit demand, loan use, pricing, and firm default using matched firm-bank data from Italy. We find evidence of adverse selection in the form of a positive correlation between the unobserved determinants of demand for credit and default. Our counterfactual experiments show that while increases in adverse selection increase prices and defaults on average, reducing credit supply, banks' market power can mitigate these negative effects.

JEL-codes: D22 D82 G21 G32 L13 L25 (search for similar items in EconPapers)
Date: 2018
Note: DOI: 10.1257/aer.20150487
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Citations: View citations in EconPapers (73)

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Related works:
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)
Working Paper: Asymmetric information and imperfect competition in lending markets (2015)
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