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Efficent credit rationing

de Meza, David and Webb, David C. (1992) Efficent credit rationing. European Economic Review, 36 (6). pp. 1277-1290. ISSN 0014-2921

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Abstract

This paper shows that credit rationing is endemic to competitive capital markets in which information is symmetrically distributed. Equilibrium contracts may restrict loans to a size well below that at which backruptcy is a threat. The model predicts that credit rationing will be most severe on projects of intermediate risk and decreases the more costly it is for creditors to recover bad debts. However, there is no case for government intervention, despite the usual identification of credit rationing as a per se capital market imperfection.

Item Type: Article
Official URL: http://www.elsevier.com/wps/find/journaldescriptio...
Additional Information: © 1992 Elsevier Science Publishing B.V.
Library of Congress subject classification: H Social Sciences > HG Finance
Sets: Research centres and groups > Managerial Economics and Strategy Group
Departments > Finance
Departments > Management
Research centres and groups > Financial Markets Group (FMG)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 06 May 2011 11:29
URL: http://eprints.lse.ac.uk/35750/

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