Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/159700
Authors: 
Coco, Giuseppe
De Meza, David
Pignataro, Giuseppe
Reito, Francesco
Year of Publication: 
2013
Series/Report no.: 
Quaderni - Working Paper DSE 861
Abstract: 
Can a bank increase its profit by subsidizing inactivity? This paper suggests this may occur, due to the presence of hidden information, in a monopolistic credit market. Rather than offering credit in a pooling contract, a monopolist bank can sort borrowers through an appropriate subsidy to inactivity. Under some conditions, sorting may avoid the collapse of the market and increases the welfare of everybody. The bank increases its profits, good borrowers benefit from lower interest rates and bad potential borrowers from the subsidy. The subsidy policy however implies a cross subsidy between contracts and this is possible only under monopoly.
JEL: 
D60
D82
H71
Persistent Identifier of the first edition: 
Creative Commons License: 
https://creativecommons.org/licenses/by-nc/3.0/
Document Type: 
Working Paper

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