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Can competition in the credit market be excessive? Author info | Abstract | Publisher info | Download info | Related research | Statistics Ramon Caminal ()
Carmen Matutes
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We study how market power affects investment and welfare when banks choose between restricting loan sizes and monitoring, in order to alleviate an underlying moral hazard problem. The impact of market power on aggregate welfare is the result of two countervailing effects. An increase in banks' market power results in: (i) higher lending rates, which worsens the borrower's incentive problem and reduces investment by unmonitored firms, (ii) higher monitoring effort, which reduces the proportion of credit-constrained firms. Whenever the second effect dominates, it is optimal to provide banks with some degree of market power.
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Paper provided by Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) in its series UFAE and IAE Working Papers with number
527.02.
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Length: 22
Date of creation: 01 Jul 2002Date of revision:
Handle: RePEc:aub:autbar:527.02Contact details of provider: Postal: 08193, Bellaterra, Barcelona Phone: 34 93 592 1203 Web page: http://pareto.uab.cat More information through EDIRC
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Keywords: market power ; monitoring ; loan size rationing ; moral hazard ; Other versions of this item:
This paper has been announced in the following NEP Reports :
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.: Besanko, David & Kanatas, George, 1993.
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[Downloadable!] (restricted)
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"Moral hazard and equilibrium credit rationing: An overview of the issues ,"
Discussion Paper Serie A
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"Oligopoly with Asymmetric Information: Differentiation in Credit Markets ,"
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Bacchetta, Philippe & Caminal, Ramon, 2000.
"Do capital market imperfections exacerbate output fluctuations? ,"
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Other versions:
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Matutes, Carmen & Vives, Xavier, 2000.
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European Economic Review ,
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Vesa Kanniainen & Rune Stenbacka, 1997.
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"Deposit Insurance, Risk, and Market Power in Banking ,"
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[Downloadable!] (restricted)
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references 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.)
Vesa Kanniainen & Rune Stenbacka, 1997.
"Project Monitoring and Banking Competition under Adverse Selection ,"
CIG Working Papers
FS IV 97-23, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG), revised Oct 1998.
[Downloadable!]
Reint Gropp & Sandrine Corvoisier, 2001.
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[Downloadable!]
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"The Strategic Response of Banks to an Exogenous Positive Information Shock in the Credit Markets ,"
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Luz Adriana Flórez & Carlos Esteban Posda & José Fernando Escobar, .
"El crédito y sus factores determinantes: el caso colombiano (1990 -2004) ,"
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Mitchell Berlin & Alexander Butler, 2002.
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MPRA Paper
13731, University Library of Munich, Germany, revised 2009.
[Downloadable!]
Luz Adriana Flórez & Carlos Esteban Posada & José Fernando Escobar, 2005.
"Crédito Y Depósitos Bancariosen Colombia (1990-2004): Una Relación De Largo Plaz ,"
ENSAYOS SOBRE POLÍTICA ECONÓMICA ,
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Félix J. López Iturriaga, 2005.
"Debt ownership structure and legal system: an international analysis ,"
Applied Economics ,
Taylor and Francis Journals, vol. 37(3), pages 355-365, February.
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Ramon Caminal, 2002.
"Taxation of banks: A theoretical framework ,"
UFAE and IAE Working Papers
525.02, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
[Downloadable!]
Ralf Elsas & Jan Pieter Krahnen, 2003.
"Universal Banks and Relationships with Firms ,"
CFS Working Paper Series
2003/20, Center for Financial Studies.
[Downloadable!]
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