Which Government Interventions Are Good in Alleviating Credit Market Failures?
AbstractCredit contracting between a lender with a market power and a small start-up entrepreneur may lead to a rejection of projects whose expected benefits are higher than their total costs when an adverse selection is present. This inefficiency may be eliminated by a government support in the form of credit guarantees or subsidies. The principal-agent model of this paper compares different forms of government support and concludes that a guarantee defined as a proportion of a gross interest rate is not a sufficiently robust policy instrument. Lump-sum guarantees and interest rate subsidies are evaluated as better instruments because they have a nonambiguous positive effect on a social efficiency since they enable funding of socially efficient projects which would not be financed otherwise.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies in its series Working Papers IES with number 2008/12.
Length: 38 pages
Date of creation: Jul 2008
Date of revision: Jul 2008
information asymmetry; credit; guarantees; subsidies;
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-2008-07-14 (All new papers)
- NEP-CTA-2008-07-14 (Contract Theory & Applications)
- NEP-PPM-2008-07-14 (Project, Program & Portfolio Management)
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.:
- Bester, Helmut, 1994.
"The Role of Collateral in a Model of Debt Renegotiation,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 26(1), pages 72-86, February.
- Bester, H., 1990. "The Role of Collateral in a Model of Debt Renegotiation," Discussion Paper 1990-60, Tilburg University, Center for Economic Research.
- Helmut Bester, 1990. "The Role of Collateral in a Model of Debt Renegotiation," CEPR Financial Markets Paper 0001, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 77 Bastwick Street, London EC1V 3PZ.
- Bester, H., 1990. "The Role Of Collateral In A Model Of Debt Renegotiation," Papers 9060, Tilburg - Center for Economic Research.
- Li, Wenli, 2002. "Entrepreneurship and government subsidies: A general equilibrium analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 26(11), pages 1815-1844, September.
- Allen N. Berger & Gregory F. Udell, 2001.
"Small business credit availability and relationship lending: the importance of bank organizational structure,"
Finance and Economics Discussion Series
2001-36, Board of Governors of the Federal Reserve System (U.S.).
- Allen N. Berger & Gregory F. Udell, 2002. "Small Business Credit Availability and Relationship Lending: The Importance of Bank Organisational Structure," Economic Journal, Royal Economic Society, vol. 112(477), pages F32-F53, February.
- Besanko, David & Thakor, Anjan V, 1987. "Collateral and Rationing: Sorting Equilibria in Monopolistic and Competitive Credit Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(3), pages 671-89, October.
- Adam GERŠL & Michal HLAVACEK, 2007. "Foreign Direct Investment, Corporate Finance, and the Life Cycle of Investment," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 57(9-10), pages 448-464, October.
- S. Illeris & G. Akehurst, 2002. "Introduction," The Service Industries Journal, Taylor & Francis Journals, vol. 22(1), pages 1-3, January.
- Robert Cressy, 2002. "Introduction: Funding Gaps," Economic Journal, Royal Economic Society, vol. 112(477), pages F1-F16, February.
- Hellmann, Thomas & Stiglitz, Joseph, 2000. "Credit and equity rationing in markets with adverse selection," European Economic Review, Elsevier, vol. 44(2), pages 281-304, February.
- Arping, Stefan & Lóránth, Gyöngyi & Morrison, Alan D., 2010.
"Public initiatives to support entrepreneurs: Credit guarantees versus co-funding,"
Journal of Financial Stability,
Elsevier, vol. 6(1), pages 26-35, April.
- Stefan Arping & Gy�ngyi L�r�nth & Alan Morrison, 2009. "Public Initiatives to Support Entrepreneurs: Credit Guarantees versus Co-Funding," Tinbergen Institute Discussion Papers 09-019/2, Tinbergen Institute.
- Petr JAKUBÍK, 2007. "Macroeconomic Environment and Credit Risk (in English)," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 57(1-2), pages 60-78, March.
- Innes, Robert, 1991. "Investment and government intervention in credit markets when there is asymmetric information," Journal of Public Economics, Elsevier, vol. 46(3), pages 347-381, December.
- Anca Pruteanu-Podpiera & Franziska Schobert & Laurent Weill, 2008. "Banking competition and cost efficiency: a micro-data analysis on the Czech banking industry," ULB Institutional Repository 2013/14307, ULB -- Universite Libre de Bruxelles.
- Claire Lelarge & David Sraer & David Thesmar, 2010.
"Entrepreneurship and Credit Constraints: Evidence from a French Loan Guarantee Program,"
in: International Differences in Entrepreneurship, pages 243-273
National Bureau of Economic Research, Inc.
- C. Lelarge & D. Sraer & D. Thesmar, 2008. "Entrepreurship and Credit Constraints - Evidence from a French Loan Guarantee Program," Documents de Travail de la DESE - Working Papers of the DESE g2008-07, Institut National de la Statistique et des Etudes Economiques, DESE.
- Bester, Helmut, 1985. "Screening vs. Rationing in Credit Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 75(4), pages 850-55, September.
- de Meza, David & Webb, David, 2000. "Does credit rationing imply insufficient lending?," Journal of Public Economics, Elsevier, vol. 78(3), pages 215-234, November.
- Wang, Cheng & Williamson, Steve, 1998. "Debt Contracts and Financial Intermediation with Costly Screening," Staff General Research Papers 5086, Iowa State University, Department of Economics.
- de Meza, David & Webb, David C, 1987. "Too Much Investment: A Problem of Asymmetric Information," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 281-92, May.
- de Meza, David & Webb, David, 1999. "Wealth, Enterprise and Credit Policy," Economic Journal, Royal Economic Society, vol. 109(455), pages 153-63, April.
- Crane, Keith & Kohler, Daniel F., 1985. "Removing export-credit subsidies to the Soviet bloc: Who gets hurt and by how much," Journal of Comparative Economics, Elsevier, vol. 9(4), pages 371-390, December.
- Bester, Helmut, 1987. "The role of collateral in credit markets with imperfect information," European Economic Review, Elsevier, vol. 31(4), pages 887-899, June.
- Robert Cressy & Otto Toivanen, 2001. "Is there adverse selection in the credit market?," Venture Capital, Taylor & Francis Journals, vol. 3(3), pages 215-238, July.
- Karel Janda, 2000. "Monopolistic credit market in the conditions of imperfect information," Prague Economic Papers, University of Economics, Prague, vol. 2000(3).
- Grazia Rapisarda & Eleonora Patacchini, 2003. "A Study of the Effectiveness of Credit Subsidies: Evidence from a Panel of Italian Firms," Economics Series Working Papers 153, University of Oxford, Department of Economics.
- Chan, Yuk-Shee & Kanatas, George, 1985. "Asymmetric Valuations and the Role of Collateral in Loan Agreements," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(1), pages 84-95, February.
- A. Fedele & A. Mantovani & F. Liucci, 2010.
"Credit availability in the crisis: which role for the European Investment Bank Group?,"
699, Dipartimento Scienze Economiche, Universita' di Bologna.
- Alessandro Fedele & Andrea Mantovani & Francesco Liucci, 2010. "Credit Availability in the crisis: which role for the European Investment Bank Group?," Working Papers 1005, University of Brescia, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lenka Herrmannova).
If references are entirely missing, you can add them using this form.