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The Comparative Statics of the Effects of Credit Guarantees and Subsidies in the Competitive Lending Market

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Abstract

We compare the effects of government credit subsidies and guarantees on decreasing inefficiencies caused by principal-agent problems in the credit market in transition and posttransition economies. We show that the guarantees and subsidies targeted to low risk borrowers decrease efficiency while those targeted to high risk borrowers increase efficiency both in transition and post-transition economies. The uniform non-targeted guarantees decrease the credit rationing or dead-weight loss caused by the collateral transfer. The uniform subsidies may be used to improve welfare in the economy subjected to credit rationing, but they do not have any effect on the size of collateral required in post-transition economy.

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  • Karel Janda, 2005. "The Comparative Statics of the Effects of Credit Guarantees and Subsidies in the Competitive Lending Market," Working Papers IES 82, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised 2005.
    • Handle: RePEc:fau:wpaper:wp082
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    5. Wadim Strielkowski & Cathal O'Donoghue, 2006. "Ready to Go? EU Enlargement and Migration Potential: Lessons for the Czech Republic in the Context of Irish Migration Experience," Prague Economic Papers, Prague University of Economics and Business, vol. 2006(1), pages 14-28.
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    Cited by:

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    6. Ratinger, Tomas & Medonos, Tomas & Spicka, Jindrich & Hruska, Martin & Vilhelm, Vaclav, "undated". "The assessment of the effects of investment support measures of the Rural Development Programmes: the case of the Czech Republic," 131st Seminar, September 18-19, 2012, Prague, Czech Republic 135775, European Association of Agricultural Economists.
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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • P31 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions

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