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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.

Suggested Citation

  • 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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    1. 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.
    2. František Turnovec & Jacek W. Mercik & Mariusz Mazurkiewicz, 2004. "Power Indices: Shapley-Shubik OR Penrose-Banzhaf?," Working Papers IES 48, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised 2004.
    3. Karel Janda, 2003. "Credit guarantees in a credit market with adverse selection," Prague Economic Papers, University of Economics, Prague, vol. 2003(4).
    4. 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.
    5. Karel Janda, 2004. "Bankruptcy Procedures with Ex Post Moral Hazard," Working Papers IES 61, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised 2004.
    6. Michal Bauer, 2005. "Theory of the Firm under Uncertainty: Financing, Attitude to Risk and Output Behavior," Working Papers IES 71, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised 2005.
    7. Wadim Strielkowski & Cathal O'Donoghue, 2005. "Ready to Go? EU Enlargement and Migration Potential: Lessons from the Czech Republic in the Context of the Irish Migration Experience," Working Papers IES 74, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised 2005.
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    Cited by:

    1. Kateřina Tsolov, 2005. "ADR/GDR Potential in Central Europe," Working Papers IES 92, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised 2005.
    2. Miloslav Vošvrda & Lukáš Vácha, 2007. "Heterogeneous Agents Model with the Worst Out Algorithm," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 1(1), pages 54-66, March.
    3. Adam Geršl, 2007. "Political Economy of Public Deficit: Perspectives for Constitutional Reform," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 1(1), pages 67-86, March.
    4. Jan Kodera & Miroslav Vošvrda, 2005. "Production, Capital Stock and Price Dynamics in a Simple Model of Closed Economy," Working Papers IES 93, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised 2005.
    5. Karel Janda, 2005. "The Quantitative and Qualitative Analysis of the Budget Cost of the Czech Supporting and Guarantee Agricultural and Forestry Fund," Working Papers IES 86, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised 2005.
    6. Ratinger, Tomas & Medonos, Tomas & Spicka, Jindrich & Hruska, Martin & Vilhelm, Vaclav, 2012. "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.
    7. Tomáš Cahlík & Tomáš Honzák & Jana Honzáková & Marcel Jiřina & Natálie Reichlová, 2005. "Convergence of Consumption Structure," Working Papers IES 99, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised 2005.

    More about this item

    Keywords

    Transition; Credit; Subsidies; Guarantees;

    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 - Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions

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