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Publication year
On the Possibility of Credit Rationing in the Stiglitz-Weiss Model
Resource type
Authors/contributors
- Arnold, Lutz G. (Author)
- Riley, John G. (Author)
Title
On the Possibility of Credit Rationing in the Stiglitz-Weiss Model
Abstract
Contrary to what is usually assumed, the expected revenue for lenders as afunction of the loan rate cannot be globally hump-shaped in the Stiglitz-Weiss(1981) adverse selection model with a continuum of types. This has importantimplications. First, if there is credit rationing, there must be at least two equilibriumloan rates. Second, while at the low rate loans are rationed, all thoseapplicants willing to pay the high rate are then served. Numerical analysisshows that unless the joint distribution of risk class and output is rather special,the two loan rate outcome with rationing is unlikely. (JEL D82, G21)
Publication
American Economic Review
Volume
99
Issue
5
Pages
2012-21
Date
2009-12
Citation
Arnold, L. G., & Riley, J. G. (2009). On the Possibility of Credit Rationing in the Stiglitz-Weiss Model. American Economic Review, 99, 2012–2021.
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