SFB 303 Discussion Paper No. A - 011

Author: Clemenz, Gerhard
Title: Credit Markets with Asymmetric Information and the Role of Collateral
Abstract: Bester (1984) has drawn attention to an important possibility in credit markets with asymmetric information: The use of collateral as a screening and incentive device which could remove credit rationing in equilibrium. It has turned out, however, that collateral variations cannot perform this function in general. One important reason is that in many models iso-profit curves of the bank passing through a particular credit contract are not less steep than the corresponding curves for borrowers. Together with the limited ability of loan applicants to provide collateral this limits the effectiveness of the latter as a signal of trustworthiness. It seems that asymmetric information continues to provide a fairly robust explanation for the possibility of equilibrium credit rationing.
Creation-Date: 1985 
Unfortunately this paper is not available online. Please contact us to order a hardcopy.

SFB 303 Homepage

12.10.1999, Webmaster