Competitive Equilibrium in the Credit Market under Asymmetric Information

David Besanko and Anjan Thakor ()

Finance from University Library of Munich, Germany

Abstract: We study a competitive credit market equilibrium in which all agents are risk neutral and lenders a priori unaware of borrowers' default probabilities. Admissible credit contracts are characterized by the credit granting probability, the loan quantity, the loan interest rate and the collateral required. The principal result is that in equilibrium lower risk borrowers pay higher interest rates than higher risk borrowers; moreover, the lower risk borrowers get more credit in equilibrium than they would with full information. No credit is rationed and collateral requirements are higher for the lower risk borrowers.

JEL-codes: G (search for similar items in EconPapers)
Pages: 16 pages
Date: 2004-11-30
New Economics Papers: this item is included in nep-fin
Note: Type of Document - pdf; pages: 16
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Competitive equilibrium in the credit market under asymmetric information (1987)
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpfi:0411045

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