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A note on loan market equilibrium when some borrowers are optimistic

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  • Jijun Niu

    (Simon Fraser University)

Abstract

We study a loan market equilibrium in which some borrowers are optimistic and banks face imperfect competition. We show that the presence of optimistic borrowers reduces the interest rate paid by safe borrowers and increases the interest rate paid by risky borrowers. But it has no net impact on the banks' profits.

Suggested Citation

  • Jijun Niu, 2010. "A note on loan market equilibrium when some borrowers are optimistic," Economics Bulletin, AccessEcon, vol. 30(2), pages 1210-1216.
    • Handle: RePEc:ebl:ecbull:eb-09-00757
    as

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    References listed on IDEAS

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    7. Hyytinen, Ari, 2003. "Loan market equilibrium with difference of opinion and imperfect competition," Economics Letters, Elsevier, vol. 78(1), pages 125-129, January.
    8. de Meza, David & Southey, Clive, 1996. "The Borrower's Curse: Optimism, Finance and Entrepreneurship," Economic Journal, Royal Economic Society, vol. 106(435), pages 375-386, March.
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    Keywords

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    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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