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Credit market structure and strategic collateral provision

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  • Rosaria Distefano
  • Francesco Reito

Abstract

In a simple lending model with informational asymmetry, we investigate the effect of bank market structure on the amount of collateral provided by firms. We analyze the strategic decision of a potential entrepreneur regarding the amount of wealth to pledge as collateral to secure a loan. The novel result is that the equilibrium collateral can be lower in a monopoly market than under perfect competition. A policy intervention designed to enhance lending is always Pareto‐improving in a monopoly but not in a competitive banking industry, even though the associated policy costs are lower in the latter setting.

Suggested Citation

  • Rosaria Distefano & Francesco Reito, 2026. "Credit market structure and strategic collateral provision," Scandinavian Journal of Economics, Wiley Blackwell, vol. 128(2), pages 424-451, April.
    • Handle: RePEc:bla:scandj:v:128:y:2026:i:2:p:424-451
    DOI: 10.1111/sjoe.12602
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