← Search

Signaling in Credit Markets

Hellmuth Milde¹; John G. Riley²

¹ McGill University · ² University of California, Los Angeles

In this paper we show that, under a variety of alternative assumptions about the private information of loan applicants, a competitive market for loans is characterized by screening. Banks separate out loan risks by offering higher loans at higher interest rates. Depending on the nature of the informational asymmetry, it may be that applicants with less risky projects select larger rather than smaller loans. Comparative statics implications are also examined. In particular, we explore the effects of an increase in banks' cost of funds on average loan quality.

DOI

10.2307/1882644

Volume

103 (1)

Pages

101

Export

BibTeX

Sources

crossref openalex