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Costly Information, Entry, and Credit Access

73 Pages Posted: 18 Apr 2006 Last revised: 17 Jun 2014

Todd A. Gormley

Washington University in St. Louis

Date Written: May 7, 2014

Abstract

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.

Keywords: Asymmetric Information, Competition, Credit, Financial Liberalization

JEL Classification: D82, F3, G2, O16, O19

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

Todd A. Gormley (Contact Author)

Washington University in St. Louis ( email )

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St. Louis, MO 63130-4899
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HOME PAGE: http://www.gormley.info

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