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COLLATERAL IN BANKING POLICY AND ADVERSE SELECTION
Author(s) -
Broll Udo,
GILROY MICHAEL B.
Publication year - 1986
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/j.1467-9957.1986.tb01278.x
Subject(s) - collateral , adverse selection , economics , collateral damage , selection (genetic algorithm) , monetary economics , financial system , actuarial science , computer science , finance , psychology , artificial intelligence , criminology
This paper presents a theoretical model of lending which emphasizes the role of asymmetric information and total debt service obligations between creditors and debtors. The analytical approach is based upon that of Stiglitz and Weiss (1981); however, emphasis here is placed upon collateral policy aspects of credit contracts as compared to the interest rate policy aspects. It is demonstrated that under certain market constellations, even assuming a completely flexible collateral banking policy, the credit market may be characterized by a disequilibrium situation.