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Collateral in Banking Policy and Adverse Selection

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  • Gilroy, Bernard Michael
  • Broll, Udo

Abstract

This paper presents a theoretical model of lending which emphasizes the role of asymmetric information and total debt service obligations between creditors and debtors. The analytical approach is based upon that of Stiglitz and Weiss (1981); however, emphasis here is placed upon collateral policy aspects of credit contracts as compared to the interest rate policy aspects. It is demonstrated that under certain market constellations, even assuming a completely flexible collateral banking policy, the credit market may be characterized by a disequilibrium situation.

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File URL: http://mpra.ub.uni-muenchen.de/18709/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 18709.

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Date of creation: 1986
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Handle: RePEc:pra:mprapa:18709

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Keywords: asymmetric information; banking; collateral policy;

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References

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  1. Smith, Bruce, 1983. "Limited Information, Credit Rationing, and Optimal Government Lending Policy," American Economic Review, American Economic Association, vol. 73(3), pages 305-18, June.
  2. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  3. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
  4. Wette, Hildegard C, 1983. "Collateral in Credit Rationing in Markets with Imperfect Information: Note," American Economic Review, American Economic Association, vol. 73(3), pages 442-45, June.
  5. Kletzer, Kenneth M, 1984. "Asymmetries of Information and LDC Borrowing with Sovereign Risk," Economic Journal, Royal Economic Society, vol. 94(374), pages 287-307, June.
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Cited by:
  1. Gilroy, Bernard Michael & Broll, Udo, 1988. "Market Behaviour, Information Asymmetries and Product Qualities," MPRA Paper 18655, University Library of Munich, Germany.

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