Endogenous information revelation in a competitive credit market and credit crunch

Yuanyuan Li and Bertrand Wigniolle

Journal of Mathematical Economics, 2017, vol. 68, issue C, 127-141

Abstract: In this paper, we propose a new mechanism able to explain the occurrence of credit crunches. Considering a credit market with an asymmetry of information between borrowers and lenders, we assume that borrowers have to pay a cost to reveal information on the quality of their project. They decide to be transparent if it is necessary for getting a loan or for paying a lower interest rate. Two types of competitive equilibria may exist: an opaque equilibrium in which all projects receive funding without revealing information; a transparent one in which only the best projects reveal information and receive funding. It is also possible to get multiple equilibria. Incorporating this microeconomic mechanism in an OLG model, the economy may experience fluctuations due to the change of regime, and indeterminacy may occur.

Keywords: Credit crunch; Endogenous information revelation (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S030440681630163X
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Endogenous information revelation in a competitive credit market and credit crunch (2017)
Working Paper: Endogenous information revelation in a competitive credit market and credit crunch (2017)
Working Paper: Endogenous information revelation in a competitive credit market and credit crunch (2017)
Working Paper: Endogenous information revelation in a competitive credit market and credit crunch (2016)
Working Paper: Endogenous information revelation in a competitive credit market and credit crunch (2016)
Working Paper: Endogenous information revelation in a competitive credit market and credit crunch (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:68:y:2017:i:c:p:127-141

DOI: 10.1016/j.jmateco.2016.09.008

Access Statistics for this article

Journal of Mathematical Economics is currently edited by Atsushi (A.) Kajii

More articles in Journal of Mathematical Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().