Costly Information, Entry, and Credit Access
Todd A. Gormley
Washington University in St. Louis
May 7, 2014
Journal of Economic Theory, Forthcoming
Using a theoretical model that incorporates asymmetric information and differing comparative advantages among lenders, this paper analyzes the impact of lender entry on credit access and aggregate net output. The model shows that lender entry has the potential to create a segmented market that increases credit access for those firms targeted by the new lenders but potentially reduces credit access for all other firms. The overall impact on net output depends on the distribution of firms, the relative costs of lenders, and the cost of acquiring information. The model provides new insights into the evidence regarding foreign lenders’ entry into emerging markets.
Number of Pages in PDF File: 73
Keywords: Asymmetric Information, Competition, Credit, Financial Liberalization
JEL Classification: D82, F3, G2, O16, O19
Date posted: April 18, 2006 ; Last revised: June 17, 2014
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