Credit markets with imperfect information: Risk-aversion versus pessimism
Jean-Louis Arcand () and
Stuart McDonald ()
Economics Letters, 2018, vol. 165, issue C, 35-38
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)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:165:y:2018:i:c:p:35-38
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