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Credit Rationing and Payment Incentives

Franklin Allen

Nuffield College, Oxford and University of Pennsylvania

Review of Economic Studies 1983

A model of borrowing for production is presented where default leads to exclusion from the capital market. This means contracts are enforceable, provided the current payment is less than or equal to the value of future access to the capital market. The main result of the paper is to show that if this constraint binds then credit is rationed.

DOI
10.2307/2297766
Volume
50 (4)
Pages
639
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