Working Paper: CEPR ID: DP261
Authors: Anindya Banerjee; Timothy Besley
Abstract: This paper develops a model of equilibrium in the market for loans. It focuses on the effects on equilibrium of (i) differences in the liability of the lender and the borrower for losses; and (ii) differences in the information available to the lender. We examine the different types of imperfection in the credit market which arise as a consequence of these differences and draw a distinction between outcomes where credit is rationed (the borrower would wish to borrow more at some interest rate) and those where credit is restricted (the borrower is able to borrow less than he would be able to were some imperfection removed). We demonstrate unambiguous propositions about credit restriction, but in the model we examine, this need not necessarily be accompanied by credit rationing.
Keywords: credit rationing; limited liability; loans; moral hazard
JEL Codes: 022; 315
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| moral hazard (G52) | credit availability (G21) |
| limited liability (K13) | credit market divergence (G19) |
| imperfect information (D83) | credit rationing (G21) |
| credit restriction (E51) | borrowing desire (G51) |
| limited liability (K13) | overconsumption of credit (E21) |