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Credit Market Failures and Policy

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  • ENRICO MINELLI
  • SALVATORE MODICA

Abstract

In a simplified version of the Stiglitz and Weiss (1981) model of the credit market we characterize optimal policies to correct market failures. Widely applied policies, notably interest-rate subsidies and investment subsidies, are compared to the theoretical optimum. Copyright � 2009 Wiley Periodicals, Inc..

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Bibliographic Info

Article provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.

Volume (Year): 11 (2009)
Issue (Month): 3 (06)
Pages: 363-382

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Handle: RePEc:bla:jpbect:v:11:y:2009:i:3:p:363-382

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  1. Townsend, Robert M., 1979. "Optimal contracts and competitive markets with costly state verification," Journal of Economic Theory, Elsevier, vol. 21(2), pages 265-293, October.
  2. Dewatripont, Mathias & Legros, Patrick & Matthews, Steven A, 2002. "Moral Hazard and Capital Structure Dynamics," CEPR Discussion Papers 3487, C.E.P.R. Discussion Papers.
  3. Gale, Douglas & Hellwig, Martin, 1985. "Incentive-Compatible Debt Contracts: The One-Period Problem," Review of Economic Studies, Wiley Blackwell, vol. 52(4), pages 647-63, October.
  4. Ordover, Janusz & Weiss, Andrew, 1981. "Information and the Law: Evaluating Legal Restrictions on Competitive Contracts," American Economic Review, American Economic Association, vol. 71(2), pages 399-404, May.
  5. Mankiw, N Gregory, 1986. "The Allocation of Credit and Financial Collapse," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 455-70, August.
  6. Hellwig, Martin, 1987. "Some recent developments in the theory of competition in markets with adverse selection ," European Economic Review, Elsevier, vol. 31(1-2), pages 319-325.
  7. 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.
  8. C. Choe, 1998. "A mechanism design approach to an optimal contract under ex ante and ex post private information," Review of Economic Design, Springer, vol. 3(3), pages 237-255.
  9. 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.
  10. Innes, Robert, 1991. "Investment and government intervention in credit markets when there is asymmetric information," Journal of Public Economics, Elsevier, vol. 46(3), pages 347-381, December.
  11. de Meza, David & Webb, David C, 1987. "Too Much Investment: A Problem of Asymmetric Information," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 281-92, May.
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