When do we have borrower or credit volume rationing in competitive credit market with imperfect information?

Arbeitspapier

This paper examines the conditions for credit volume or borrower rationing in a competitive credit market in which the project characteristics are private information of the borrowers. There can only be credit volume rationing if the higher-risk credit applicants have a higher return in the event of a project success than the lower-risk credit applicants. Then the higher-risk borrowers are not rationed and obtain the social efficient credit volume. If the incentive compatibility constraint of the higher risk borrowers is binding, the lower-risk borrowers are credit volume rationed such that the constraint holds as an equation. If credit volume rationing is not sufficient to separate the borrower types, there is additionally a rationing of the low-risk borrowers. If the low-risk borrowers prefer a pooling to a separating contract, then there will not be a Cournot-Nash separating equilibrium, but a Wilson and a Grossmann pooling equilibrium.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Thünen-Series of Applied Economic Theory - Working Paper ; No. 117

Classification and Topics

• Classification: Wirtschaft ; Asymmetric and Private Information; Mechanism Design ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages
• Subject: Credit rationing ; Credit Size ; Loan ; Asymmetric Information ; Adverse Selection ; Non-linear optimization ; Kreditrationierung ; Kreditmarkt ; Asymmetrische Information ; Adverse Selektion ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Kraus, Daniel
• Event: Veröffentlichung
• (who): Universität Rostock, Institut für Volkswirtschaftslehre
• (where): Rostock
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/74664
• Last update: 10.03.2025, 11:43 AM CET