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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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Paper provided by Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies in its series Working Papers IES with number 82.

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Length: 23 pages
Date of creation: 2005
Date of revision: 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. 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.
  3. 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.
  4. 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.
  5. 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.
  6. Karel Janda, 2003. "Credit guarantees in a credit market with adverse selection," Prague Economic Papers, University of Economics, Prague, vol. 2003(4).
  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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