The adverse selection problem in imperfectly competitive credit markets
Mälkönen, Ville; Vesala, Timo (05.09.2006)
Numero
26/2006Julkaisija
Suomen Pankki
2006
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:bof-20140807113Tiivistelmä
We study the adverse selection problem in imperfectly competitive credit markets and illustrate the circumstances where a separating equilibrium emerges, even without collateral.The borrowers are heterogeneous in their preferences concerning the banks.Separation obtains in market segments where the 'high risk' borrowers receive credit from their preferred bank.The 'low risk' borrowers choose the ex-ante less-preferred bank that offers loan contracts with lower interest rates.The availability of credit will be maximized under an intermediate level of competition, a prediction that is supported by recent empirical evidence. Keywords: asymmetric information, credit rationing, bank differentiation JEL classification numbers: D43, D82, G21, L13
Julkaisuhuomautus
Published in Oxford Economic Papers, Volume 65, Issue 4, 2013, Pages 789-806