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Competitive Lending with Partial Knowledge of Loan Repayment: Some Positive and Normative Analysis

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  • WILLIAM A. BROCK
  • CHARLES F. MANSKI

Abstract

We study a credit market where lenders with partial knowledge of repayment use one of several criteria to make lending decisions. Supposing that a public Authority wants to maximize the social return to borrowing, we study interventions that manipulate the return on the safe asset or guarantee a minimum loan return. Manipulating the return on the safe asset is effective if lender beliefs about the return to lending are not too pessimistic relative to those of the Authority. Guaranteeing a minimum return is effective if lender beliefs are not too optimistic relative to those of the Authority.
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Suggested Citation

  • William A. Brock & Charles F. Manski, 2011. "Competitive Lending with Partial Knowledge of Loan Repayment: Some Positive and Normative Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 441-459, March.
    • Handle: RePEc:mcb:jmoncb:v:43:y:2011:i::p:441-459
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    Cited by:

    1. Stoye, Jörg, 2012. "Minimax regret treatment choice with covariates or with limited validity of experiments," Journal of Econometrics, Elsevier, vol. 166(1), pages 138-156.
    2. Cosmin L. Ilut & Martin Schneider, 2022. "Modeling Uncertainty as Ambiguity: a Review," NBER Working Papers 29915, National Bureau of Economic Research, Inc.
    3. Costantini, Mauro & Sousa, Ricardo M., 2022. "What uncertainty does to euro area sovereign bond markets: Flight to safety and flight to quality," Journal of International Money and Finance, Elsevier, vol. 122(C).
    4. Chollete, Lorán & Jaffee, Dwight & Mamun, Khawaja A., 2022. "Policy suggestions from a simple framework with extreme outcomes," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 374-398.
    5. Charles F. Manski, 2014. "Choosing Size of Government Under Ambiguity: Infrastructure Spending and Income Taxation," Economic Journal, Royal Economic Society, vol. 0(576), pages 359-376, May.
    6. Tiziana Assenza & William A. Brock & Cars H. Hommes, 2017. "Animal Spirits, Heterogeneous Expectations, And The Amplification And Duration Of Crises," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 542-564, January.

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