Abstract
In a lending relationship, a bank learns information on its borrowers.
Adverse selection makes the usefulness and value of this information
depend on the interest rates the bank charges in the different periods. The
optimal intertemporal screening of borrowers calls for a monopolistic
bank to smooth interest rates. In a repeated relationship, interest rates
are lower than in a one-period setting; furthermore, they are less volatile
and the quality of the loans is higher than under competition (with symmetric
information). Information sharing may reduce both the probability
that a debt will be paid and the sum of banks’ and borrowers’ profits.
Lingua originale | English |
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pagine (da-a) | 641-657 |
Numero di pagine | 17 |
Rivista | Manchester School |
Volume | 72 |
DOI | |
Stato di pubblicazione | Pubblicato - 2004 |
Keywords
- adverse selection
- information sharing
- learning by lending
- market power
- repeated relationship