Hostname: page-component-78c5997874-fbnjt Total loading time: 0 Render date: 2024-11-15T15:58:07.477Z Has data issue: false hasContentIssue false
  • English
  • Français

Costly Information Production Equilibria in the Bank Credit Market with Applications to Credit Rationing

Published online by Cambridge University Press:  06 April 2009

Anjan V. Thakor  and
Richard Callaway
Get access Rights & Permissions [Opens in a new window]

Extract

In this paper, we explore the nature of equilibria in an asymmetrically informed bank credit market in which credit applicants know their own (intrinsic) default risks, but potential lenders can discover these default risks only by expending resources to produce information. The resolution of informational asymmetries in the capital market is, in the contemporary view, considered a very important function served by financial intermediaries like commercial banks and, in the opinion of some, even the primary justification for their existence [17]. We, therefore, focus on how the presence of asymmetric information—in particular, the response of (expected) profit-maximizing banks to it—affects the equilibrium prices and quantities of credit offered in the banking system.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 18 , Issue 2 , June 1983 , pp. 229 - 256
Copyright
Copyright © School of Business Administration, University of Washington 1983

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

[1]Akerlof, G. A. “The Market for ‘Lemons’: Qualitative Uncertainty and the Market Mechanism.” Quarterly Journal of Economics, Vol. 84 (08 1970), pp. 488–500.CrossRefGoogle Scholar
[2]Baltensperger, E. “Credit Rationing: Issues and Questions.” The Journal of Money, Credit and Banking, Vol. 10 (05 1978), pp. 170–183.CrossRefGoogle Scholar
[3]Bhattacharya, S. “Imperfect Information, Dividend Policy, and the ‘Bird in the Hand’ Fallacy.” The Bell Journal of Economics, Vol. 10 (Spring 1979), pp. 259–270.CrossRefGoogle Scholar
[4]Bhattacharya, S. “Nondissipative Signalling Structures and Dividend Policy.” Quarterly Journal of Economics, Vol. 95 (08 1980), pp. 1–24.CrossRefGoogle Scholar
[5]Bhattacharya, S. “Aspects of Monetary and Banking Theory and Moral Hazard.” Journal of Finance, Vol. 37 (05 1982), pp. 371–384.CrossRefGoogle Scholar
[6]Campbell, T., and Kracaw, W.. “Information Production, Market Signalling, and the Theory of Financial Intermediation.” Journal of Finance, Vol. 35 (09 1980), pp. 863–882.CrossRefGoogle Scholar
[7]Campbell, T., and Kracaw, W.. “Sorting Equilibria in Financial Markets: ‘The Incentive Problem.’” Journal of Financial and Quantitative Analysis, Vol. 16 (11 1981), pp. 477–492.CrossRefGoogle Scholar
[8]Diamond, D. “Intermediation and Delegated Monitoring.” CRSP working paper, University of Chicago (1979).Google Scholar
[9]Fried, J., and Howitt, P.. “Credit Rationing and Implicit Contract Theory.” The Journal of Money, Credit and Banking, Vol. 12 (08 1980), pp. 471–487.CrossRefGoogle Scholar
[10]Grossman, S. “On the Efficiency of Competitive Stock Markets Where Traders Have Diverse Information.” Journal of Finance, Vol. 31 (05 1976), pp. 573–585.CrossRefGoogle Scholar
[11]Grossman, S., and Stiglitz, J. E.. “Information and Competitive Price Systems.’ The American Economic Review, Vol. 66 (05 1976), pp. 246–253.Google Scholar
[12]Jaffee, D. M. “A Theory and Test of Credit Rationing: Further Notes.” The American Economic Review, Vol. 62 (06 1972), pp. 484–488.Google Scholar
[13]Jaffee, D. M., and Modigliani, F.. “A Theory and Test of Credit Rationing.” The American Economic Review, Vol. 59 (12 1969), pp. 850–872.Google Scholar
[14]Jaffee, D. M., and Russell, T.. “Imperfect Information, Uncertainty, and Credit Rationing.” Quarterly Journal of Economics, Vol. 90 (11 1976), pp. 651–666.CrossRefGoogle Scholar
[15]Kohn, M. G., and Shavell, S.. “Optimal Adaptive Search.” Journal of Economic Theory, Vol. 9 (10 1974), pp. 93–123.CrossRefGoogle Scholar
[16]Koskela, E.A Study of Bank Behavior and Credit Rationing. Helsinki: Adademia Scientarum Fennica (1976).Google Scholar
[17]Leland, H., and Pyle, D.. “Informational Asymmetries, Financial Structure, and Financial Intermediation.” Journal of Finance, Vol. 32 (05 1977), pp. 371–387.CrossRefGoogle Scholar
[18]Modigliani, M., and Miller, M. H.. “The Cost of Capital, Corporation Finance, and the Theory of Investment.” The American Economic Review, Vol. 48 (06 1958), pp. 261–297.Google Scholar
[19]Nelson, P. “Information and Consumer Behavior.” Journal of Political Economy, Vol. 78 (03/04 1970), pp. 311–329.CrossRefGoogle Scholar
[20]Ross, S. A. “The Determination of Financial Structure: The Incentive Signalling Approach.” The Bell Journal of Economics, Vol. 8 (Spring 1977), pp. 23–40.CrossRefGoogle Scholar
[21]Rothschild, M.“Searching for the Lowest Price When the Distribution of Prices Is Unknown.” Journal of Political Economy, Vol. 82 (07/08 1974), pp. 689–711.CrossRefGoogle Scholar
[22]Samuelson, P. A. In “Monetary Policy and Management of the Public Debt: Hearings before the Subcommittee on General-Audit Control and Debt Management.” Joint Committee on the Economic Report, 2nd Congress, and Session (1952), p. 697.Google Scholar
[23]Spence, M. A. “Job Market Signalling.” Quarterly Journal of Economics, Vol. 87 (08 1973), pp. 355–374.CrossRefGoogle Scholar
[24]Spence, M. A.. “Competitive and Optimal Responses to Signals: Analysis of Efficiency and Distribution.’ Journal of Economic Theory, Vol. 7 (03 1974), pp. 296–332.CrossRefGoogle Scholar
[25]Stiglitz, J. E. “A Theory of ‘Screening’, Education, and the Distribution of Income.” The American Economic Review, Vol. 65 (06 1975), pp. 283–300.Google Scholar
[26]Stiglitz, J. E., and Weiss, A.. “Credit Rationing in Markets with Imperfect Information.” The American Economic Review, Vol. 71 (06 1981), pp. 393–410.Google Scholar
[27]Stiglitz, J. E., and Weiss, A.. “Cutting Off Credit: An Application of Constraints as Incentive Devices.” Berkeley/Stanford Finance Colloquim (02 1982).Google Scholar
[28]Symposium on Economics of Information, Review of Economic Studies, Vol. 44, (10 1977), pp. 561–572.CrossRefGoogle Scholar
[29]Viscusi, K. “A Note on ‘Lemons’ Markets with Quality Certification.” The Bell Journal of Economics, Vol. 9 (Spring 1978), pp. 277–280.CrossRefGoogle Scholar