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Response to "A Note on the Nonexistence of a Rationing Equilibrium in the Besanko-Thakor Model."

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  • Besanko, David
  • Thakor, Anjan

Abstract

Clemenz's 1993 comment criticizes our 1987 paper in two ways: first, a Nash equilibrium with rationing does not exist; second, allowing randomization across credit contracts changes the equilibrium from our 1987 paper. We respond as follows. First, our rationing equilibrium is a sequential equilibrium when informed borrowers move first. Moreover, it is a Riley reactive equilibrium when uninformed banks move first and have an infinitesimally positive cost of offering contracts. Second, equilibria with augmented strategy spaces often differ from equilibria with simpler strategy spaces. It is no surprise this is true in our paper. However, the augmentations suggested by Clemenz is institutionally unappealing. Copyright 1993 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Besanko, David & Thakor, Anjan, 1993. "Response to "A Note on the Nonexistence of a Rationing Equilibrium in the Besanko-Thakor Model."," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(3), pages 739-740, August.
    • Handle: RePEc:ier:iecrev:v:34:y:1993:i:3:p:739-40
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    Cited by:

    1. Saoussen Ben Gamra & Dominique Plihon, 2011. "Revenue diversification in emerging market banks: implications for financial performance," Working Papers hal-00598136, HAL.
    2. Aerdt Houben & Jan Kakes & Garry Schinasi, 2004. "Towards a framework for financial stability," DNB Occasional Studies 201, Netherlands Central Bank, Research Department.
    3. Cavid Nabiyev & Kanan Musayev & Leyla Yusifzada, 2016. "Banking Competition and Financial Stability: Evidence from CIS Countries," Working Papers 1604, Central Bank of Azerbaijan Republic.
    4. Saoussen Ben Gamra & Dominique Plihon, 2011. "Revenue diversification in emerging market banks: implications for financial performance," Papers 1107.0170, arXiv.org.
    5. Natalya Martynova & Enrico Perotti & Javier Suarez, 2019. "Bank Capital Forbearance," Working Papers wp2019_1908, CEMFI.
    6. Gillian Garcia & Henriëtte Prast, 2004. "Depositor and investor protection in the Netherlands: past, present and future," DNB Occasional Studies 202, Netherlands Central Bank, Research Department.
    7. Nabiyev, Javid & Musayev, Kanan & Yusifzada, Leyla, 2016. "Banking Competition and Financial Stability: Evidence from CIS," MPRA Paper 72167, University Library of Munich, Germany.

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