Resource title

Credit Risk, Credit Rationing, and the Role of Banks: The Case of Risk Averse Lenders

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Resource description

The standard situation of ex post information asymmetry between borrowers and lenders is extended by risk aversion and heterogenous levels of reservation utility of lenders. In a situation of direct contracting optimal incentive compatible contracts are valuable for both, borrowers and lenders. However, there may appear credit rationing as a consequence of borrowers optimal decision making. Introducing a bank into the market increases total wealth due to the appearance of a portfolio effect in the sense of first order stochastic dominance. It can be shown that this effect may even reduce the problem of credit rationing provided it is su?ciently strong.

Resource author

Thilo Pausch

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/22794

Resource license

Adapt according to the presented license agreement and reference the original author.