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.
- Credit rationing
- Increasing risk
- Rank-dependent expected utility
ASJC Scopus subject areas
- Economics and Econometrics