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Vertical Differentiation, Asymmetric Information and Endogenous Bank Screening

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Author Info
Ari Hyytinen (The Research Institute of the Finnish Economy (ETLA))
Otto Toivanen (Helsinki School of Economics)

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Abstract

In a model of bank lending characterized by asymmetric information, we show that banks may use an interim monitoring technology strategically to soften price competition, even though the borrowers face no moral hazard problem. The interim monitoring technology can also be used to alleviate adverse selection. The equilibria that emerge resemble those in vertical product differentiation models. We also show that because of the strategic use of interim monitoring, a bank may forego the use of a costless and perfect ex-ante screening technology.

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Publisher Info
Article provided by Berkeley Electronic Press in its journal Topics in Theoretical Economics.

Volume (Year): 4 (2004)
Issue (Month): 1 ()
Pages: 1041-1041
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Handle: RePEc:bep:thetop:v:4:y:2004:i:1:p:1041-1041

Note: oai:bepress:bejte-1041
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Related research
Keywords: banking vertical differentiation endogenous screening supermodularity

Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Besanko, David & Kanatas, George, 1993. "Credit Market Equilibrium with Bank Monitoring and Moral Hazard," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 6(1), pages 213-32. [Downloadable!] (restricted)
  2. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Blackwell Publishing, vol. 51(3), pages 393-414, July. [Downloadable!] (restricted)
  3. Hellmann, Thomas & Stiglitz, Joseph, 2000. "Credit and equity rationing in markets with adverse selection," European Economic Review, Elsevier, vol. 44(2), pages 281-304, February. [Downloadable!] (restricted)
  4. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June. [Downloadable!] (restricted)
  5. J. Miguel Villas-Boas & Udo Schmidt-Mohr, 1999. "Oligopoly with Asymmetric Information: Differentiation in Credit Markets," RAND Journal of Economics, The RAND Corporation, vol. 30(3), pages 375-396, Autumn. [Downloadable!] (restricted)
  6. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Blackwell Publishing, vol. 49(1), pages 3-13, January. [Downloadable!] (restricted)
  7. Robert Hauswald & Robert Marquez, 2003. "Information Technology and Financial Services Competition," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 16(3), pages 921-948, July. [Downloadable!] (restricted)
  8. Bester, Helmut, 1985. "Screening vs. Rationing in Credit Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 75(4), pages 850-55, September. [Downloadable!] (restricted)
  9. Chan, Yuk-Shee & Greenbaum, Stuart I. & Thakor, Anjan V., 1986. "Information reusability, competition and bank asset quality," Journal of Banking & Finance, Elsevier, vol. 10(2), pages 243-253, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ari Hyytinen & Otto Toivanen, 2002. "Misuse and Non-use of Information Acquisition Technologies in Banking," Discussion Papers 823, The Research Institute of the Finnish Economy. [Downloadable!]
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This page was last updated on 2008-11-13.

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