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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

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Date posted: April 18, 2006 ; Last revised: June 17, 2014

Suggested Citation

Gormley, Todd A., Costly Information, Entry, and Credit Access (May 7, 2014). Journal of Economic Theory, Forthcoming. Available at SSRN: https://ssrn.com/abstract=896000 or http://dx.doi.org/10.2139/ssrn.896000

Contact Information

Todd A. Gormley (Contact Author)
Washington University in St. Louis ( email )
One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
(314) 935-7171 (Phone)
HOME PAGE: http://www.gormley.info
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