Advanced Search
MyIDEAS: Login

Pairwise credit and the initial cost of lending

Contents:

Author Info

  • Daniel R. Sanches
Registered author(s):

    Abstract

    The author studies the terms of credit in a competitive market in which sellers are willing to repeatedly finance the purchases of buyers by extending direct credit. Lenders (sellers) can commit to deliver any long-term credit contract that does not result in a payoff that is lower than that associated with autarky, while borrowers (buyers) cannot commit to any contract. A borrower's ability to repay a loan is privately observable. As a result, the terms of credit within an enduring relationship change over time, according to the history of trades. Two borrowers are treated differently by the lenders with whom they are paired because they have had distinct repayment histories. Although there is free entry of lenders in the credit market, each lender has to pay a cost to contact a borrower. A lower cost makes each borrower better off from the perspective of the contracting date, results in less variability in a borrower's expected discounted utility, and makes each lender uniformly worse off ex post. As this cost becomes small, borrowers get nearly the same terms of credit within their credit relationships with lenders, regardless of individual repayment histories.

    Download Info

    If 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.
    File URL: http://www.philadelphiafed.org/research-and-data/publications/working-papers/2010/wp10-23.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 10-23.

    as in new window
    Length:
    Date of creation: 2010
    Date of revision:
    Handle: RePEc:fip:fedpwp:10-23

    Contact details of provider:
    Postal: 10 Independence Mall, Philadelphia, PA 19106-1574
    Web page: http://www.philadelphiafed.org/
    More information through EDIRC

    Order Information:
    Email:
    Web: http://www.phil.frb.org/econ/wps/index.html

    Related research

    Keywords: Credit ; Loans;

    This paper has been announced in the following NEP Reports:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:fip:fedpwp:10-23. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Beth Paul).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.