Credit markets with imperfect information: Risk-aversion versus pessimism

Jean Louis Arcand, Stuart McDonald

Research output: Journal PublicationArticlepeer-review

Abstract

Stiglitz and Weiss (1981) credit rationing is embedded within rank dependent expected utility theory. Our results show that sufficient pessimism or sufficient risk-aversion by borrowers may eliminate adverse selection. Moreover, lender optimism may eliminate credit rationing even when adverse selection exists.

Original languageEnglish
Pages (from-to)35-38
Number of pages4
JournalEconomics Letters
Volume165
DOIs
Publication statusPublished - Apr 2018
Externally publishedYes

Keywords

  • Credit rationing
  • Increasing risk
  • Rank-dependent expected utility
  • Risk-aversion

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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