Keyword: Competition, selection, multidimensional private information
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[2022년 5차 CAFM2022]Competition and Lending Standards with Multidimensional Private Information
작성자 : 관리자
조회수 : 2082
게시일 :
2022-12-20
We investigate how loan terms respond to competition between lenders when borrowers have multidimensional private information. In our model, competitive lenders screen borrowers using contracts that consist of an interest rate and a collateral requirement. Compared to a constrained planner’s outcome, the competitive market overprices low-collateral loans, and underprices high-collateral loans. The result is that high-quality borrowers pledge an excessive amount of collateral, which is socially wasteful due to its deadweight costs. The competitive outcome may be more or less efficient than a monopolist lender, depending on the size of those deadweight costs and the degree of selection externalities.
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