Credit Rationing and the Welfare Gain from Usury Laws
AbstractThis paper demonstrates that when a rationing equilibrium occurs in credit markets due to adverse selection effects of the interest rate, it is necessarily a multiple contracts (i.e. multiple interest rates) equilibrium with rationing at one contract. Some consequent arguments for a welfare improving role of usury laws, based on the possibility of increasing the share of low-risk projects carried out in equilibrium, are then examined.
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Bibliographic InfoPaper provided by Exeter University, Department of Economics in its series Discussion Papers with number 9715.
Length: 16 pages
Date of creation: 1997
Date of revision:
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INFORMATION ; REGULATION;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
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- Arnold, Lutz G. & Reeder, Johannes & Trepl , Stefanie, 2010. "Single-Name Credit Risk, Portfolio Risk, and Credit Rationing," University of Regensburg Working Papers in Business, Economics and Management Information Systems 448, University of Regensburg, Department of Economics.
- Giuseppe Coco & David de Meza, 2001.
"In defence of usury laws,"
LSE Research Online Documents on Economics
25042, London School of Economics and Political Science, LSE Library.
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