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Extreme screening policies

Arup Bose (), Debashis Pal () and David Sappington

European Economic Review, 2012, vol. 56, issue 8, 1607-1620

Abstract: We show that a lender often experiences increasing marginal returns to screening in a standard setting where the lender decides how intensively to screen the projects of prospective borrowers. The increasing marginal returns imply that even small changes in industry parameters can produce large changes in equilibrium screening intensity. In particular, a small reduction in the expected return from borrowers' projects can produce a pronounced increase in the screening of prospective borrowers, with substantial corresponding welfare effects.

Keywords: Screening; Adverse selection; Lending policies (search for similar items in EconPapers)
JEL-codes: D82 G24 (search for similar items in EconPapers)
Date: 2012
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Handle: RePEc:eee:eecrev:v:56:y:2012:i:8:p:1607-1620