Endogenous information revelation in a competitive credit market and credit crunch

Yuanyuan Li () and Bertrand Wigniolle
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Yuanyuan Li: Universität Bielefeld = Bielefeld University, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique

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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
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01509773v1
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Citations: View citations in EconPapers (3)

Published in Journal of Mathematical Economics, 2017, 68, pp.127-141. ⟨10.1016/j.jmateco.2016.09.008⟩

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Related works:
Journal Article: 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)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-01509773

DOI: 10.1016/j.jmateco.2016.09.008

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