The Allocation of Credit and Financial Collapse
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In this article, the allocation of credit in a market in which borrowers have greater information concerning their own riskiness than do lenders is examined and the authors suggest a role for government as the lender of last resort.Abstract:
This paper examines the allocation of credit in a market in which borrowers have greater information concerning their own riskiness than do lenders. It illustrates that (1) the allocation of credit is inefficient and at times can be improved by government intervention, and (2) small changes in the exogenous risk-free interest rate can cause large (discontinuous) changes in the allocation of credit and the efficiency of the market equilibrium. These conclusions suggests a role for government as the lender of last resort.read more
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References
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The Market for “Lemons”: Quality Uncertainty and the Market Mechanism
TL;DR: In this paper, the authors present a struggling attempt to give structure to the statement: "Business in under-developed countries is difficult"; in particular, a structure is given for determining the economic costs of dishonesty.
Posted ContentDOI
Credit Rationing in Markets with Imperfect Information.
Joseph E. Stiglitz,Andrew Weiss +1 more
TL;DR: In this paper, a model is developed to provide the first theoretical justification for true credit rationing in a loan market, where the amount of the loan and amount of collateral demanded affect the behavior and distribution of borrowers, and interest rates serve as screening devices for evaluating risk.
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Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression
TL;DR: This paper examined the effects of the financial crisis of the 1930s on the path of aggregate output during that period and argued that the financial disruptions of 1930-33 reduced the efficiency of the credit allocation process; and that the resulting higher cost and reduced availability of credit acted to depress aggregate demand.
Posted Content
Information and the Law: Evaluating Legal Restrictions on Competitive Contracts
Janusz A. Ordover,Andrew Weiss +1 more
TL;DR: In this paper, the authors examine three quite different forms of government intervention and show that in each case interference with what may appear to be "competitive" market outcomes may improve the allocation of resources.