This article provides an analysis of how banks determine levels of information production when they are in imperfect competition and there is a condition of information asymmetry between borrowers and banks. Specifically, the study concentrates on information production activities of banks in duopoly where they simultaneously determine intensity of pre-loan screening as well as interest rates. The preliminary model of this paper illustrates that due to strategic complementarities between banks, banking competition can result in inferior equilibrium out of multiple equilibria and insufficient information production. Policymakers must take into account the possible adverse effects of competition-enhancing policies on information production activities.
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Publisher Info
Paper provided by Institute of Developing Economies, Japan External Trade Organization(JETRO) in its series IDE Discussion Papers with number
15.
Length: Date of creation: Nov 2004 Date of revision: Publication status: Published in IDE Discussion Paper. No. 15. 2004.11 Handle: RePEc:jet:dpaper:dpaper15