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Credit markets with imperfect information: Risk-aversion versus pessimism

Jean-Louis Arcand () and Stuart McDonald ()

Economics Letters, 2018, vol. 165, issue C, 35-38

Abstract: Stiglitz and Weiss (1981) credit rationing is embedded within rank dependent expected utility theory. Our results show that sufficient pessimism or sufficient risk-aversion by borrowers may eliminate adverse selection. Moreover, lender optimism may eliminate credit rationing even when adverse selection exists.

Keywords: Rank-dependent expected utility; Increasing risk; Risk-aversion; Credit rationing (search for similar items in EconPapers)
JEL-codes: D81 D82 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1016/j.econlet.2018.01.029

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