Thilo Pausch
Credit Risk, Credit Rationing, and the Role of Banks: The Case of
Risk Averse Lenders
Abstract:
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 sufficiently strong.
JEL: D82, G21, L22
Paper:
Paper available as pdf-file.
Beitrag Nr. 271, Volkswirtschaftliche Diskussionsreihe, Institut
für
Volkswirtschaftslehre der Universität Augsburg
Contact:
Thilo Pausch,
University of Augsburg, Department
of Economics,
Universitätsstr. 16,
D-86159 Augsburg, Germany, phone +49-821-598-4196; fax +49-821-598-4230
E-mail: thilo.pausch@wiwi.uni-augsburg.de
v.
K., 28.02.2005