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Arnold, Lutz G., and
John G. Riley. 2009. "On the Possibility of Credit Rationing in the Stiglitz-Weiss Model."
,
99(5): 2012-21.
Show Article Details
DOI: 10.1257/aer.99.5.2012
Abstract:Contrary to what is usually assumed, the expected revenue for lenders as a
function of the loan rate cannot be globally hump-shaped in the Stiglitz-Weiss
(1981) adverse selection model with a continuum of types. This has important
implications. First, if there is credit rationing, there must be at least two equilibrium
loan rates. Second, while at the low rate loans are rationed, all those
applicants willing to pay the high rate are then served. Numerical analysis
shows that unless the joint distribution of risk class and output is rather special,
the two loan rate outcome with rationing is unlikely. (JEL D82, G21)
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Appendix
Authors:
Arnold, Lutz G. (U Regensburg)
Riley, John G. (UCLA)
JEL Classifications:
D82: Asymmetric and Private Information
G21: Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
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