The near impossibility of credit rationing
Equilibrium credit rationing in the sense of Stiglitz and Weiss (1981) implies the marginal cost of funds to the borrower is infinite. So borrowers have an overwhelming incentive to cut their loan by a dollar and thereby avoiding being rationed. Ways of doing this include scaling down the project, cutting consumption or infinitesimally delaying the project to accumulate more saving. All of these routes are normally feasible in which case credit rationing is impossible.
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- Simon Parker, 2000. "Saving to Overcome Borrowing Constraints: Implications for Small Business Entry and Exit," Small Business Economics, Springer, vol. 15(3), pages 223-232, November.
- 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.
- Bester, Helmut, 1985. "Screening vs. Rationing in Credit Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 75(4), pages 850-855, September. Full references (including those not matched with items on IDEAS)
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