Asymmetric Information and Imperfect Competition in the Loan Market

Gregory S Crawfordy, Nicola Pavaniniz and Fabiano Schivardi
Additional contact information
Gregory S Crawfordy: University of Zurich, CEPR and CAGE
Nicola Pavaniniz: zUniversity of Zurich
Authors registered in the RePEc Author Service: Nicola Pavanini

CAGE Online Working Paper Series from Competitive Advantage in the Global Economy (CAGE)

Abstract: We measure the consequences of asymmetric information in the Italian market for small business lines of credit. Exploiting detailed, proprietary data on a random sample of Italian firms, the population of medium and large Italian banks, individual lines of credit between them, and subsequent individual defaults, we estimate models of demand for credit, loan pricing, loan use, and firm default based on the seminal work of Stiglitz and Weiss (1981) to measure the extent and consequences of asymmetric information in this market. While our data include a measure of observable credit risk comparable to that available to a bank during the application process, we allow firms to have private information about the underlying riskiness of their project. This riskiness influences banks’ pricing of loans as higher interest rates attract a riskier pool of borrowers, increasing aggregate default probabilities. Data on default, loan size, demand, and pricing separately identify the distribution of private riskiness from heterogeneous firm disutility from paying interest. Preliminary results suggest evidence of asymmetric information, separately identifying adverse selection and moral hazard. We use our results to quantify the impact of asymmetric information on pricing and welfare, and the role imperfect competition plays in mediating these effects.

Keywords: Italian; asymmetric information (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-com, nep-cta, nep-fmk and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www2.warwick.ac.uk/fac/soc/economics/resear ... 67-2013_crawford.pdf

Related works:
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:cge:wacage:167

Access Statistics for this paper

More papers in CAGE Online Working Paper Series from Competitive Advantage in the Global Economy (CAGE) Contact information at EDIRC.
Bibliographic data for series maintained by Jane Snape ().