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Credit from the Monopoly Bank

Author

Listed:
  • Lengwiler, Yvan

    () (University of Basel)

  • Rishabh, Kumar

    () (University of Basel)

Abstract

We establish that a monopoly bank never uses collateral as a screening device. A pooling equilibrium always exists in which all borrowers pay the same interest rate and put zero collateral. Absence of screening leads to socially inefficient lending in the sense that some socially productive firms are denied credit due to excessively high interest rate.

Suggested Citation

  • Lengwiler, Yvan & Rishabh, Kumar, 2017. "Credit from the Monopoly Bank," Working papers 2017/15, Faculty of Business and Economics - University of Basel.
  • Handle: RePEc:bsl:wpaper:2017/15
    as

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    References listed on IDEAS

    as
    1. Joseph E. Stiglitz, 1977. "Monopoly, Non-linear Pricing and Imperfect Information: The Insurance Market," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 407-430.
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    4. Sengupta, Rajdeep, 2014. "Lending to uncreditworthy borrowers," Journal of Financial Intermediation, Elsevier, vol. 23(1), pages 101-128.
    5. Beck, Thorsten & Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2004. "Bank Competition and Access to Finance: International Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 627-648, June.
    6. Hans Degryse & Luc Laeven & Steven Ongena, 2009. "The Impact of Organizational Structure and Lending Technology on Banking Competition," Review of Finance, European Finance Association, vol. 13(2), pages 225-259.
    7. Riley, John G, 1979. "Informational Equilibrium," Econometrica, Econometric Society, vol. 47(2), pages 331-359, March.
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    More about this item

    Keywords

    Monopoly bank; credit; contracts; screening; pooling; collateral;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • D00 - Microeconomics - - General - - - General

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