The adverse selection problem in imperfectly competitive credit markets

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Title: The adverse selection problem in imperfectly competitive credit markets
ISBN: 952-462-328-5
Author: Mälkönen, Ville ; Vesala, Timo
Organization: Suomen Pankki
Series: Bank of Finland Research Discussion Papers
ISSN: 1456-6184
Series year: 2006
Series number: 26/2006
Year of publication: 2006
Publication date: 5.9.2006
Published in: Published in Oxford Economic Papers, Volume 65, Issue 4, 2013, Pages 789-806
DOI: 10.1093/oep/gps045
Pages: 21 s.
Keywords: luotot; kilpailu; pankkitoiminta; informaatio; adverse selection;
JEL: D43; D82; G21; L13
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. Keywords: asymmetric information, credit rationing, bank differentiation JEL classification numbers: D43, D82, G21, L13
Rights: https://helda.helsinki.fi/bof/copyright


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