Collateral, Rationing, and Government Intervention in Credit Markets / William G. Gale.

Format:

Book

Author/Creator:

Gale, William G.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w3024.

NBER working paper series no. w3024

Language:

English

Subjects (All):

Credit control.

Government lending.

Retirement age.

Labor productivity.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1989.

Cambridge, Massachusetts : National Bureau of Economic Research, 1989.

Summary:

This paper analyzes the effects of government intervention in credit markets when lenders use collateral, interest, and the probability of granting a loan as potential screening devices. Equilibria with and without rationing are examined. The principal theme is that credit policies operate through their effect on the incentive compatibility constraint, which inhibits high-risk borrowers from mimicking the behavior of low-risk borrowers. Any policy that loosens (tightens) the constraint raises (reduces) efficiency. Most government credit programs explicitly attempt to fund investors that cannot obtain private financing. In the model presented here, these subsidies increase the extent of rationing and reduce efficiency. In contrast, policies that subsidize the nonrationed borrowers, or all borrowers, are efficiency enhancing, and reduce the extent of rationing.

Notes:

Print version record

July 1989.