Journal article
Credit Rationing by Loan Size in Commercial Loan Markets
Economic quarterly - Federal Reserve Bank of Richmond, Vol.78(3), p.3
05/01/1992
Abstract
Economists believe that higher average interest rates are charged on smaller loans because small borrowers are greater credit risks or because loan administration costs are being spread over a smaller base. However, even if credit risk and loan administration costs are the same for all borrowers, a lender with market power and imperfect information about borrowers' characteristics still will offer quantity-dependent loan interest rates. A model consists of numerous borrowers who differ along a single dimension, namely 2nd-period endowment. The lender has market power and wishes to maximize profit. The model shows that a profit-maximizing lender operating in an imperfect market will choose to price discriminate, or credit ration, by setting an inverse relationship between the loan sizes offered and the interest rates charged. Quantity constraints, or credit rationing, arise endogenously as an optimal response to the information restriction in an imperfectly competitive market.
Details
- Title: Subtitle
- Credit Rationing by Loan Size in Commercial Loan Markets
- Creators
- Stacey SchreftAnne Villamil
- Resource Type
- Journal article
- Publication Details
- Economic quarterly - Federal Reserve Bank of Richmond, Vol.78(3), p.3
- Publisher
- Federal Reserve Bank of Richmond
- ISSN
- 0094-6893
- eISSN
- 2163-4556
- Language
- English
- Date published
- 05/01/1992
- Academic Unit
- Economics
- Record Identifier
- 9984380644702771
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