Components of Credit Rationing
33 Pages Posted: 11 Nov 2019
Date Written: July 1, 2019
Existence and implications of credit rationing by lending institutions have been the subject of much research in recent decades. Although there are some empirical indications, there is no theoretical justification about how various forms of credit rationing manifest themselves in credit markets. This study offers a theoreti- cal decomposition of credit rationing within a model of equilibrium credit rationing that generalizes some of seminal models of equilibrium credit rationing. The study first theoretically establishes three distinct components of rationing, namely, low-type rationing, market-tightness rationing, and self-imposed rationing, and then exhibits empirical evidence on the magnitude of each of the three rationing components using a bi-annual survey data set on various forms of bank credit rationing collected by European Central Bank over the period 2009-2018.
Keywords: asymmetric information; credit risk; incentive compatibility; optimal contracts
JEL Classification: D82, G21, G32
Suggested Citation: Suggested Citation