Take Action

Home | Faculty & Research Overview | Research

Research Details

Competitive Equilibrium in the Credit Market Under Asymmetric Information, Journal of Economic Theory

Abstract

We study a competitive credit market equilibrium in which all agents are risk neutral and lenders a priori unaware of borrowers' default probabilities. Admissible credit contracts are characterized by the credit granting probability, the loan quantity, the loan interest rate and the collateral required. The principal result is that in equilibrium lower risk borrowers pay higher interest rates than higher risk borrowers; moreover, the lower risk borrowers get more credit in equilibrium than they would with full information. No credit is rationed and collateral requirements are higher for the lower risk borrowers.

Type

Article

Author(s)

David Besanko, Anjan V. Thakor

Date Published

1987

Citations

Besanko, David, and Anjan V. Thakor. 1987. Competitive Equilibrium in the Credit Market Under Asymmetric Information. Journal of Economic Theory. 42(1): 167-182.

KELLOGG INSIGHT

Explore leading research and ideas

Find articles, podcast episodes, and videos that spark ideas in lifelong learners, and inspire those looking to advance in their careers.
learn more

COURSE CATALOG

Review Courses & Schedules

Access information about specific courses and their schedules by viewing the interactive course scheduler tool.
LEARN MORE

DEGREE PROGRAMS

Discover the path to your goals

Whether you choose our Full-Time, Part-Time or Executive MBA program, you’ll enjoy the same unparalleled education, exceptional faculty and distinctive culture.
learn more

Take Action