Credit Rationing and Public Support of Commercial Credit
AbstractCredit contracting between a lender with monopoly market power and a small start-up entrepreneur may lead to the rejection of projects whose expected benefits are higher than their total costs. This inefficiency may be eliminated by government support in the form of credit guarantees or interest rate subsidies. This paper compares different forms of government support and concludes that credit guarantees and interest rate subsidies have a nonambiguous positive effect on social efficiency since they enable the financing of socially efficient projects which would not be financed otherwise. The comparison of government budget costs for these two types of government interventions depends on the institutional details and parametrization of the credit problem.
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Bibliographic InfoPaper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp436.
Date of creation: Apr 2011
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credit; subsidy; guarantee;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-07-13 (All new papers)
- NEP-BAN-2011-07-13 (Banking)
- NEP-PPM-2011-07-13 (Project, Program & Portfolio Management)
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