Signalling in Credit Markets
In this paper, the authors show that, under a variety of alternative assumptions about the private informati on of loan applicants, a competitive market for loans is characterize d by screening. Banks separate out loan risks by offering higher loan s at higher interest rates. Depending on the nature of the informatio nal asymmetry, it may be that applicants with less risky projects sel ect larger rather than smaller loans. Comparative statics implication s are also examined. In particular, the authors explore the effects o f an increase in banks' cost of funds on average loan quality. Copyright 1988, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
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References listed on IDEAS
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- Besanko, David & Thakor, Anjan V, 1987. "Collateral and Rationing: Sorting Equilibria in Monopolistic and Competitive Credit Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(3), pages 671-89, October.
- Riley, John G., 1975.
Journal of Economic Theory,
Elsevier, vol. 10(2), pages 174-186, April.
- Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
- repec:tpr:qjecon:v:90:y:1976:i:4:p:630-49 is not listed on IDEAS
- Bester, Helmut, 1985. "Screening vs. Rationing in Credit Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 75(4), pages 850-55, September.
- Chan, Yuk-Shee & Kanatas, George, 1985. "Asymmetric Valuations and the Role of Collateral in Loan Agreements," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(1), pages 84-95, February.
- Jaffee, Dwight M, 1972. "A Theory and Test of Credit Rationing: Further Notes," American Economic Review, American Economic Association, vol. 62(3), pages 484-88, June.
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