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The near impossibility of credit rationing

de Meza, David and Webb, David C. (2003) The near impossibility of credit rationing. Discussion paper, 459. Financial Markets Group, London School of Economics and Political Science, London, UK.

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Identification Number: 459

Abstract

Equilibrium credit rationing in the sense of Stiglitz and Weiss (1981) implies the marginal cost of funds to the borrower is infinite. So borrowers have an overwhelming incentive to cut their loan by a dollar and thereby avoiding being rationed. Ways of doing this include scaling down the project, cutting consumption or infinitesimally delaying the project to accumulate more saving. All of these routes are normally feasible in which case credit rationing is impossible.

Item Type: Monograph (Discussion Paper)
Official URL: http://fmg.lse.ac.uk
Additional Information: © 2003 The Authors
Subjects: H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
Sets: Research centres and groups > Financial Markets Group (FMG)
Collections > Economists Online
Collections > LSE Financial Markets Group (FMG) Working Papers
Date Deposited: 13 Aug 2009 13:11
Last Modified: 27 Feb 2014 15:35
URI: http://eprints.lse.ac.uk/id/eprint/24858

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