The Option to Wait to Invest and Equilibrium Credit Rationing

Robert Lensink and Elmer Sterken

Journal of Money, Credit and Banking, 2002, vol. 34, issue 1, 221-25

Abstract: Stiglitz and Weiss (1981) show that firms considering risky projects have higher reservation interest rates and hence it is optimal for a bank to reduce loan supply. In this note we show that when the risk involved in an investment will be resolved in the future, investors with riskier projects have a greater return from waiting. More risky projects have lower reservation interest rates and hence there is no motive for banks to ration credit demand.

Date: 2002
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Persistent link: https://EconPapers.repec.org/RePEc:mcb:jmoncb:v:34:y:2002:i:1:p:221-25

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