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On the Use of Collateral

Author

Listed:
  • Coco, G.

Abstract

This paper surveys existing explanations for the use of collateral in credit markets and relates them to the empirical evidence on the subject. Collateral may be used as a screening or an incentive device in markets characterized by various forms of asymmetric and biased information. The evidence is incompatible with the use of collateral as a signal of projects' quality, while broadly consistent with explanations based on its incentive properties and asymmetric evaluation of projects.

Suggested Citation

  • Coco, G., 1998. "On the Use of Collateral," Discussion Papers 9805, Exeter University, Department of Economics.
  • Handle: RePEc:exe:wpaper:9805
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    Keywords

    CREDIT ; CREDIT SYSTEMS ; INFORMATION ; CREDIT POLICY ; RATIONING 4RJ. 28p.;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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