Consumer credit under asymmetric information: The wrong types apply

Rosaria Distefano, Gianfranco Di Fede and Francesco Reito

Economics Letters, 2020, vol. 197, issue C

Abstract: We present a simple asymmetric information model of the consumer credit with perfectly competitive banks and many borrowers who wish to advance the purchase of an indivisible good. We show a credit rationing equilibrium is possible. Unlike business lending models, it is not just the volume of lending that is wrong but also who gets loans. A policy that targets the interest rate can increase social efficiency, but not achieve the first best.

Keywords: Consumer credit; Overlending; Credit rationing (search for similar items in EconPapers)
JEL-codes: D61 D82 H20 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:197:y:2020:i:c:s0165176520303736

DOI: 10.1016/j.econlet.2020.109613

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