The Comparative Statics of the Effects of Credit Guarantees and Subsidies in the Competitive Lending Market
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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|Date of revision:||2005|
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- Peter Tuchyòa & Martin Gregor, 2005. "Centralization Trade-off with Non-Uniform Taxes," Working Papers IES 81, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised 2005.
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- 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.
- Karel Janda, 2003. "Credit guarantees in a credit market with adverse selection," Prague Economic Papers, University of Economics, Prague, vol. 2003(4).
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