IDEAS home Printed from https://ideas.repec.org/a/aea/aecrev/v104y2014i12p4027-70.html
   My bibliography  Save this article

Reputation and Persistence of Adverse Selection in Secondary Loan Markets

Author

Listed:
  • V. V. Chari
  • Ali Shourideh
  • Ariel Zetlin-Jones

Abstract

The volume of new issuances in secondary loan markets fluctuates over time and falls when collateral values fall. We develop a model with adverse selection and reputation that is consistent with such fluctuations. Adverse selection ensures that the volume of trade falls when collateral values fall. Without reputation, the equilibrium has separation, adverse selection is quickly resolved, and trade volume is independent of collateral value. With reputation, the equilibrium has pooling and adverse selection persists over time. The equilibrium is efficient unless collateral values are low and originators' reputational levels are low. We describe policies that can implement efficient outcomes. (JEL D82, G11, G21, G28)

Suggested Citation

  • V. V. Chari & Ali Shourideh & Ariel Zetlin-Jones, 2014. "Reputation and Persistence of Adverse Selection in Secondary Loan Markets," American Economic Review, American Economic Association, vol. 104(12), pages 4027-4070, December.
    • Handle: RePEc:aea:aecrev:v:104:y:2014:i:12:p:4027-70
    Note: DOI: 10.1257/aer.104.12.4027
    as

    Download full text from publisher

    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.104.12.4027
    Download Restriction: no
    File URL: http://www.aeaweb.org/aer/app/10412/20110580_app.pdf
    Download Restriction: no
    File URL: http://www.aeaweb.org/aer/ds/10412/20110580_ds.zip
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    ---><---

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:104:y:2014:i:12:p:4027-70. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.