IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Information Costs and the Organization of Credit Markets: A Theory of Indirect Lending

  • Staten, Michael E
  • Gilley, Otis W
  • Umbeck, John
Registered author(s):

    This paper explains indirect lending as a strategy for reducing a bank's cost of screening borrowers. Commercial banks appear to "ration" credit by rejecting some direct loan applicants, although they accept higher-risk borrowers who apply for loans indirectly through retailers. However, the more thorough credit check on direct loans causes applicants to sort themselves according to risk. Indirect applicants signal their higher risk through their choice of financing. Since banks gather more accurate information on direct applicants, the two types of contracts should differ in predictable ways. These implications are tested with Federal Reserve data on 5,000 automobile loans. Copyright 1990 by Oxford University Press.

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below under "Related research" whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Article provided by Western Economic Association International in its journal Economic Inquiry.

    Volume (Year): 28 (1990)
    Issue (Month): 3 (July)
    Pages: 508-29

    as
    in new window

    Handle: RePEc:oup:ecinqu:v:28:y:1990:i:3:p:508-29
    Contact details of provider: Postal: Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK
    Phone: 714-965-8800
    Fax: 01865 267 985
    Web page: http://ei.oupjournals.org/
    Email:


    More information through EDIRC

    Order Information: Web: http://www.oup.co.uk/journals

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:oup:ecinqu:v:28:y:1990:i:3:p:508-29. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press)

    or (Christopher F. Baum)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.