Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/74664
Authors: 
Kraus, Daniel
Year of Publication: 
2010
Series/Report no.: 
Thünen-Series of Applied Economic Theory 117
Abstract: 
This paper examines the conditions for credit volume or borrower rationing in a competitive credit market in which the project characteristics are private information of the borrowers. There can only be credit volume rationing if the higher-risk credit applicants have a higher return in the event of a project success than the lower-risk credit applicants. Then the higher-risk borrowers are not rationed and obtain the social efficient credit volume. If the incentive compatibility constraint of the higher risk borrowers is binding, the lower-risk borrowers are credit volume rationed such that the constraint holds as an equation. If credit volume rationing is not sufficient to separate the borrower types, there is additionally a rationing of the low-risk borrowers. If the low-risk borrowers prefer a pooling to a separating contract, then there will not be a Cournot-Nash separating equilibrium, but a Wilson and a Grossmann pooling equilibrium.
Subjects: 
Credit rationing
Credit Size
Loan
Asymmetric Information
Adverse Selection
Non-linear optimization
JEL: 
D82
G21
Document Type: 
Working Paper

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