Browsing by Subject "adverse selection"

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  • Vauhkonen, Jukka (1999)
    In this thesis we analyse the functioning of credit markets in environments where adverse selection interferes with an efficient allocation of capital. Throughout the thesis we assume that borrowers have private information on the profitability of their investment projects and, consequently, on the probability of being able to repay the funds they have loaned. A special feature of our thesis is that lenders can reduce or totally eliminate the adverse selection problem by expending resources on the ex-ante screening of borrowers. Thus, by investing in ex-ante screening lenders can reduce the informational gap between them and borrowers before the financial contract is signed. In the first model we derive the optimal financial contracts between a monopoly lender and two types of borrowers in an environment where good borrowers' return distributions first-order stochastically dominate bad borrowers' return distributions and where the lender has access to a costly and perfect screening technology. When the lender can commit to stochastic screening - that is, when she can commit to inspect only a certain proportion of loan applicants, the unique optimal contract for bad borrowers combines features of equity and call option contracts. This results contradicts earlier studies, where in an otherwise identical environment but with a large number of small and identical lenders the optimal contract is the standard debt contract. In our second model we investigate how the loan interest rate competition between two banks, only one of which has access to a costly but imperfect ex-ante monitoring technology, affects the optimal level of monitoring and, more generally, the feasibility of monitoring. We compare the investments in monitoring between a monopoly bank and a banking duopoly. We show that the state of economy is a crucial determinant of the effects of competition on the investment in monitoring: for low values of the state of economy, an increase in competition has no effects on monitoring incentives - for intermediate values of the state economy, competition reduces incentives to monitor - and for sufficiently high values of the state of economy, an increase in competition even increases investments in the monitoring technology. Furthermore, the intensity of competition between the two banks is shown to be an increasing function of the state of economy.
  • Mukminov, Rinat (Svenska handelshögskolan, 2015)
    Economics and Society – 286
    In the period from 2007 to 2009 the world experienced the deepest financial crisis since the Great Depression. The world economy was in the most severe recession since the Second World War. The financial crisis was followed by a debt crisis in the euro area, which is still far from being resolved. The world economy is yet to recover from the crisis. The financial crises are recurring phenomena. The financial crisis of 2007-2009 is in many ways similar to the previous crises. It has been argued that banks’ poor screening incentives at the peak of the business cycle are one of the main causes of the recurring crises. Bank screening literature argues that in boom times, when the majority of loan applications are good, the price competition between the banks intensifies, leading to lower returns from screening loan applicants. As a consequence, screening standards decline and many bad loans end up on the bank balance sheets. Defaults of the bad loans lead to a deterioration of the banks’ loan portfolios, which causes credit crunches and bank crises. There is also an emerging finance literature arguing that a lower cost of funds, such as a lower cost of deposits, cheaper credit in the interbank market, a lower discount rate, encourages the banks to take excessive risks. Excessive risk-taking by the banks can also lead to a bank crisis. These two approaches explain excessive bank risk-taking from two different points of view: the former one from the point of view of bank revenues, while the latter approach explains excessive risk-taking from the point of view of bank costs. The aim of this dissertation is to build a bridge between these two approaches. This dissertation contributes to the screening literature by explicitly introducing the cost of funds into a bank screening model. This is novel, as most previous bank screening literature has assumed the deposit market to be fully competitive with zero interest rate, thus ignoring the impact of the deposit interest rate on bank screening incentives. This dissertation also extends the literature, which explores the effects of costs of funds on the bank risk-taking, by explicitly modelling the banks’ investment in screening of potential loan applicants.
  • Valtonen, H; Kempers, J; Karttunen, A (Kela, 2014)
    Working papers 65
    This nationally representative questionnaire survey provides insight into the demographics, motivations and behaviour of consumers opting for supplementary health insurance (SHI), and the impact of SHI on consumer utilisation of healthcare services. The data was collected from a combination of online and paper-based surveys (N = 1,620, response rate 41%) in October 2013 – January 2014. The questionnaire covers both adult and children’s SHI. The data comprises information on respondents’ socio-economics, health insurance, motivations for purchasing (or not purchasing) SHI and utilisation of healthcare services. We analyse 1) the current utilisation of and trends in SHI, 2) the preferences and motivations of Finnish consumers in opting for SHI in relation to their background characteristics, and 3) the consequences of SHI on primary healthcare service utilisation. A total of 22.7% of Finnish adults and 52.0% of children had SHI. The reasons for purchasing SHI were faster access, wider choice, better quality and willingness to use private healthcare (PRH) services. For adults, labour market position, level of education, better health and household income were significantly associated with SHI. For children, the most important factor associated with purchasing insurance seems to be the educational level of the (responding) parent. There was a significant interdependence between parents' and children’s SHI. For adults, the insurance decreases the probability they will choose a public provider and increases the utilisation of private services. For children, the insurance increases the probability of choosing a private provider. The SHI decreases the utilisation of public services for adults and increases the utilisation of private services. For children, there seems to be no effect on the utilisation of public services, but a significant increase in the utilisation of private services. Also the mode of purchase, i.e. self-purchased or employer-purchased, seems to influence healthcare utilisation in the working population. Self-purchased SHI increases the utilisation of private services, but employer-purchased SHI has no impact on healthcare utilisation. Tällä väestöä edustavaan otokseen perustuvalla tutkimuksella selvitetään vakuutusten hankkimisen sosio-demografiaa, kansalaisten motivaatioita, käyttäytymistä ja vakuutusten vaikutusta terveyspalvelusten käyttöön. Aineisto on koottu yhdistetyllä verkko- ja paperilomakekyselyllä (N = 1 620, vastausprosentti oli 41 %) lokakuun 2013 ja tammikuun 2014 välisenä aikana. Tutkimus kattaa sekä aikuisten että heidän lastensa terveyteen liittyvät vakuutukset. Aineisto sisältää tietoja vastaajien sosio-ekonomisesta asemasta, terveysvakuutuksista, vakuutuksen valinnan (tai valitsematta jättämisen) motiiveista, vakuutuksen käytöstä ja vaikutuksesta terveyspalvelujen käyttöön. Selvitämme tässä tutkimuksessa; 1) terveysvakuutusten määrää ja niiden käytön trendejä, 2) kansalaisten preferenssejä ja motiiveja vakuutusten hankinnassa ja 3) vakuutusten seurauksia terveyspalvelujen käytössä. Suomalaisista aikuisista 22,7 %:lla ja lapsiperheistä 52,0 %:lla on yksityinen terveysvakuutus. Syyt vakuutuksen hankintaan ovat nopea hoitoon pääsy, laajempi palveluvalikoima ja koettu yksityisten palvelujen parempi laatu. Aikuisten vakuutuksen valintaa selittävät työmarkkina-asema, koulutustaso ja kotitalouden tulot. Aikuisilla vakuutuksen omaajilla on parempi terveydentila kuin ilman vakuutusta olevilla. Aikuisten ja lasten vakuutukset keskittyvät samoihin kotitalouksiin. Lasten vakuutusten valintaa selittää ensisijaisesti vanhemman koulutus. Aikuisten ja lasten vakuuttamista selittävät täten hieman erilaiset seikat. Vakuutus selittää terveyspalvelujen tuottajan valintaa ja palvelujen käytettyä määrää. Vakuutus näyttää johtavan yksityisten palvelujen käyttöön ja lisääntyneeseen palvelukäyttöön erityisesti lapsilla. Aikuisilla vakuutus vähentää julkisen ja lisää yksityisen palveluntuottajan valinnan todennäköisyyttä. Lapsilla taas vakuutus lisää yksityisen tuottajan valinnan todennäköisyyttä. Vakuutus vähentää aikuisilla julkisten ja lisää yksityisen palvelujen käytettyä määrää. Lapsilla julkisten palvelujen käyttö ei vähene, mutta yksityisten palvelujen käyttö lisääntyy. Myös vakuutuksen hankinnan tavalla on yhteys palvelujen käyttöön. Työssäkäyvien aikuisten itse hankkima vakuutus tuottaa lisäyksen yksityisten palvelujen käytetyssä määrässä, mutta työnantajan hankkima vakuutus ei ole yhteydessä julkisten, yksityisten tai työterveyshuollon palvelujen käytettyyn määrään.