On the Use of Collateral

Giuseppe Coco

Journal of Economic Surveys, 2000, vol. 14, issue 2, 191-214

Abstract: This paper surveys existing explanations for the pervasive use of collateral in credit markets and relates them to the empirical evidence on the subject. Collateral may be used as a screening or an incentive device in markets characterized by various forms of asymmetric and biased information. The evidence is incompatible with the use of collateral as a signal of projects’ quality, while broadly consistent with explanations based on its incentive properties and asymmetric evaluation of projects.

Date: 2000
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Working Paper: On the Use of Collateral (1998)
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