The safe are rationed, the risky not – an extension of the Stiglitz-Weiss model

Helke Waelde

No 1108, Working Papers from Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz

Abstract: Using only two risk types in the Stiglitz-Weiss model it turns out that the return function for banks has to be double hump-shaped. We derive the demand for loans and the supply of loans and find that loans are provided at two interest rates in equilibrium. The safe borrowers are rationed at the lower interest rate, whereas the risky borrowers are not rationed at all. Compared to the existing literature this suggests that the more heterogenous the risk types are, the less credit is rationed. However, credit-rationing persists in equilibrium as long as we consider a discrete number of types.

JEL-codes: D44 E43 E52 E58 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2011-05-04, Revised 2011-05-04
New Economics Papers: this item is included in nep-ban and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:jgu:wpaper:1108

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