Redistribution, Collateral Subsidy and Screening
AbstractUnder adverse selection, redlining of borrowers may occur when their wealth is not sufficient to reach the collateral needed by creditors to separate types. In this paper, potential entrepreneurs can join in a peer group and voluntarily decide to collect and redistribute their endowments. If the fund is not enough to give everyone the amount of collateral that allows for a separation of types, this paper suggests that the government should intervene with a subsidy on the collateral. This policy produces a unique separating equilibrium and is the optimal intervention in the setup analyzed.
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Bibliographic InfoArticle provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.
Volume (Year): 67 (2011)
Issue (Month): 1 (March)
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Web page: http://www.mohr.de/fa
Postal: Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany
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- G. Coco & D. De Meza & G. Pignataro & F. Reito, 2013.
"Take the money and run: making profits by paying borrowers to stay home,"
wp861, Dipartimento Scienze Economiche, Universita' di Bologna.
- Giuseppe Coco & David De Meza & Giuseppe Pignataro & Francesco Reito, 2012. "Take the Money and Run: Making Profi ts by Paying Borrowers to Stay Home," Working Papers - Economics wp2012_27.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
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