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Title:Credit Risk, Credit Rationing, and the Role of Banks: The Case of Risk Averse Lenders PDF Logo
Authors:Pausch, Thilo
Issue Date:2005
Series/Report no.:Volkswirtschaftliche Diskussionsreihe / Institut für Volkswirtschaftslehre der Universität Augsburg 271
Abstract:The standard situation of ex post information asymmetry between borrowers and lenders is extended by risk aversion and heterogenous levels of reservation utility of lenders. In a situation of direct contracting optimal incentive compatible contracts are valuable for both, borrowers and lenders. However, there may appear credit rationing as a consequence of borrowers optimal decision making. Introducing a bank into the market increases total wealth due to the appearance of a portfolio effect in the sense of first order stochastic dominance. It can be shown that this effect may even reduce the problem of credit rationing provided it is su?ciently strong.
Subjects:risk aversion
costly state verification
credit rationing
bank
JEL:L22
G21
D82
Document Type:Working Paper
Appears in Collections:Volkswirtschaftliche Diskussionsreihe, Universität Augsburg

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