Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212051 
Year of Publication: 
2006
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 26/2006
Publisher: 
Bank of Finland, Helsinki
Abstract: 
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.
Subjects: 
asymmetric information
credit rationing
bank differentiation
JEL: 
D43
D82
G21
L13
Persistent Identifier of the first edition: 
ISBN: 
952-462-329-3
Document Type: 
Working Paper

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