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| Tekijä: | Asparouhova, E. |
| Otsikko: | Competition in lending: theory and experiments |
| Lehti: | Review of finance
2006 : VOL. 10:2, p. 189-219 |
| Asiasana: | adverse selection competition equilibrium analysis loans |
| Kieli: | eng |
| Tiivistelmä: | This paper examines a variation of the Rothschild-Stiglitz equilibrium in the context of competitive lending under adverse selection. The predicstions of the model are tested in an experimental market setting. If equilibrium exists, the loan contracts offered and taken should separate projects by quality. When equilibrium exists, the experiments confirm the theory. The entrepreneurs with high-risk projects take bigger loans and pay higher spreads than those with low-risk projects. When equilibrium does not exist, which happens exactly when the candidate equilibrium does not provide Pareto-optimal allocation, in half of the sessions loan trading stabilizes around the candidate equilibrium pair. In the other half, however, markets never settle down. |
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