American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Asymmetric Information and Imperfect Competition in Lending Markets
American Economic Review
(pp. 1659–1701)
Abstract
We study the effects of asymmetric information and imperfect competition in the market for small business lines of credit. We estimate a structural model of credit demand, loan use, pricing, and firm default using matched firm-bank data from Italy. We find evidence of adverse selection in the form of a positive correlation between the unobserved determinants of demand for credit and default. Our counterfactual experiments show that while increases in adverse selection increase prices and defaults on average, reducing credit supply, banks' market power can mitigate these negative effects.Citation
Crawford, Gregory S., Nicola Pavanini, and Fabiano Schivardi. 2018. "Asymmetric Information and Imperfect Competition in Lending Markets." American Economic Review 108 (7): 1659–1701. DOI: 10.1257/aer.20150487Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- D82 Asymmetric and Private Information; Mechanism Design
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- L13 Oligopoly and Other Imperfect Markets
- L25 Firm Performance: Size, Diversification, and Scope