credlt markets with asymmetric

UMVERSlDADE NOVA DE LlSBOA OUTmiddot l(FOtuldadf de E(OIlOmid

Iv 9 -1 0tIB

CREDlT MARKETS WITH ASYMMETRIC

INFORMATION

an overview On the rationing issue

Fernando Chau Working Paper NQ 102

UNIVERSlDADE NOVA ~E LISBOA

Faculdade de Economia

Travessa Estevao Pinto

1000 LISBOA

_ HI ~

-~~

J l- ~ J-- bullbull I

Novembro19S8

Resumo

Este urveuroy sobre r1tonament d redltn e composto de duas partes

a primfira estuda (1$ problemas que emetgetn numraquo ((onomia com informaoao prlvada

e a segunda concentra-se sabre as cnntJlbuiolen de Jaffee e Russel (1971)) de

Stiglitz If Weiss tlq~l)deale Ii Hellwig l4fFd dt Williamson UQS4) na explic~ lt10 dt raClOnameotn nn mercada de capitaigt (tmt urn feoOmeno de eqllilibria

Sumado

ApOs a rormula~M dll riuutrma dltgt wailahdily~ d rrdlt() t tiosa 1951) 0- intertsae pelo

fwuIpoundUo racionallIento de rrpdito manlfve~s fonstlltf A tiIfll h Natura qu~ sem ~xcepoo

uhliza a hip6tes~ de infor~ao pIlvada Jaffee e- Hmssd (Wih xplora (l imfntlvo urn devedor

df$onesto wm elll nao pagat HVlda numl econmlJia ot1d wk d fa~lIda e (exogcflamentc)

fho quando maior for 0 crediu obtido maior scn tllliio [l 1(NltlVO (m dedarlU a fllJimcia

() It(r(ooo cit crtgtdito i conwrnnna e dondt os rolll-rMol rlt ((110 uo eqllil(brio tem lucro

fSptfadn uilio Uevtda n infQnnaiio Infompieta e ao iunoil ) qllt lt) devfilm ciesonesto tern em

fazer-se passar por nonesto I por os ball()lt concorrefern PffM deVfJores urn tqllijibrio separado

mio Sf oht~m portant(l somellt am iontrato d neJilo nfHqdn IplOR (fdorps no equilibria

~8tt os dt-vedores desones(O$ dffSfjafllUn IItli VOIIl11f df rrp(hto tllftJ0t dfl qUf 0 do equilibria sendo

pnrtanto racionados (rarionaltlPnto do 1110 I ~fgundo a t(fllllllnlnplft dp Keion 1970)

Sllgli t7 I Weiss I HISII )p1ram I 31l1hplll a sfIlt2(ltii lid rgtl- flill 1111 H)lomia ande os bancO$

(ll(OTrftn rjOG rjpr0S1talltffS AS han-nO olin nFtIPf TP111IlhIlyj -()lll(Awm pagM tIlelhor OS

q~ (l~middotpoSjtaltf1gt AaniJando lIItuad ()~ 1rgtnj)fN (nrllllt~ dllqpll H qllilidaJgt lt1Il lerrnos

la 1tlan(la cia distrilHHltao da wnfabilldfld( Jos proJffl(gt~ k IIINllUleuio qugt possuem todoo

os proJ(ttos t m a UgtSltla rentabilidadrgt Illpd1ltl ()Il jwrnca til ~~l am do tntSlltO rrnmtante de

aIHtal fm apoundl( Or f1l1enflltl ~ firma nn protegid31 p la Li1~lifl (atllo) d responsabilldade

lllllltada prdeudo a hipottlth (jut tenham ikpiada lln hIf ~Iglitz F cisI assumem na

prtntflra part do artigo UIHl hivnipe a df ~ alN nub (QIH() f(gtI1WjHfllt iii () un) sperado (Ia firma

I rmuor (luallto malOr ror 0 rtSff) 1 IlIHKr lIaf11Hlna) 1( 1[0110 qw ~Ia tiVff 11m aumento

gtia taxa df JUlU macmenta n ultro tgtSfWfldo do ball ldn 1 lrtRlfA ( nditcs a este efeito

fflIdmwnto fOllLudo opoe-Sf a jPjt(ttC arhrsa ma det_(rj(m~ii HfI llmlithui media da carleira

Ip rditol fflujtAllje tlo fa 01 ltausfPI It dr tNldnlwnl I dtjPf para n ffdor lIl(Hzlda

pfln lumel)to da taxa de jure fa ( Illrrn ltsNado dns firnlaF 1 llWlOf ris(o tornilr-se lulo antes

n das firmas d IlHlIOr rttf( Dond a lJfVa df orrla df rrfrillq nAn mOIl0toVt (uando a curva

lt pro(Ufa de ndiio estivr a dirella dl pOllIo d mlkxJ dfl nina r ofcrta urn caso ondt

1m aO)Jtllto df tflX1l d jur lRtll a10m do ponto de infiexao

lIul(a pOOl o(orrCf sfgondo ~tqhtl Wl~ porqut Ilj -lt hall(( suhopll~middotam e IUIll mercado

-QI1lt()fr(gtnnal perdem deponlallt1 f d-Sfpar-f1l) f (iii II firma ijlW Jlan ohtefJdo rredito ofcreee

oma remufJeraoao mais alla ao pottllflfll haw) )10 lt()I1S1tlf mdlllH om aumento na oferta de

(Hidltbullbull Hilla vea 1n a firma sO podt ser Il1lla rom ill proJedo I lHUOr ns(o ai$oci~o com uilla

rentabiiJdad ncgntlva esperada para p rrf(kgtr bll nplilibrio q bancO ofcrerern (olltrados de

nedito nmn montante mferlor no da prnnlrll IIprpld AS firlHas ~in rlt1oofda~ (stocnsti(1UrKnie

o fpl)11H1l0 (il ~dnlt tv ad vrrxa dmiddotlt h I ~lIrtl ~ Irwdl ig pOT lirI lt11- firma gtlQiJtlt

3slIaqllltiidade () qllt pmCOf32oav([ ou de middotrteJlIll)middot ltIf lllff dos hilll()S os COlllEll~adorfS

tem roncentmdo $OhM est ultimo Mgt(gtcto (eg Ufshr jl~~jl HOWHb1l111Ilte na utiEza iio da

hipoiltc8 como uma riaveJ estrttteglca para se ohler 11m e 11 owrlrado ltPctHtemente eno ~ Kreps t IgOO) rOfllalizarnm () rontra~o de ((iJilo COlllO 111 On dll liP pamemiddot noopiando na solwao

do jogo os erite-rio de f4IhHidildp ftv1[)adoo por ohllwfll gt gtl rl ins olltend sltpMataO Hellwig

(198Gb) usando 0 mel1ll1O ccnceito de equiHLrio mas ltOm me difFmiddotnw ordem do jogo obtem

racionamento

i1llwHtiando do trIl[JO piolitD j- TowllsrE ( 10711 It Ii rlwig ( 1985) c oV liliamson

(1981l studarltgt11 a Ilatutna h estfU11Hl hnucira lmlllit tffL IIII com inrmma-ao pdvada

mas que e oblNvlivfj se se iH)rter um nlsto cxugrHltlllnl ilh Fill inJbos os uabalhos a

estrutura IlImIl(ira fnd6gena ua P-OllOlllia ( (nrmnda hlllltld ~ rgtdit-o Ie capital IfOPriO se os

empreendedores liVerel retllrso~ propriosj () onrato dp -rlJtn middotplin-aJo de fltal1ltlrU - um

contrato optimo -iflffnt(VP tompatihlf (ud a fir ma P~gh jurN llIa)f) IfOjftto df inv(stfmellto

for urn suelsso e no tWO ronLrario (om foldiscaoiio do lIjql rcllllf1 deduzidv do tusto de

observaoiio pelo trfdor Em BoyJ f lrhlt-oU (llJ86L W1Jitdll~-1l i HI f Umtllon-3 l9S1) a fUll-ao

de mlermed(a~Ao pafeCf~ NIlt6pel31tlCnt(gt

somat6riomiddot dos crMil06 na ltonomia dF-vido it tlccnsijad- dp liUUhH 0 kJ(1))fIIO de Cree rider

quando 011 invftimentoo sao fin((lJciado$ por IImjs do um crqlor (flllIlIOld) Ott para gltLtflnilr um

rendiwento certo para as dposilantes (Boyd I PrcsroH f ri[Ul1S til HfI gf1llde coligaAo 1

depollitant~~ conscgue fimmclar um gral11hmiddot lHimero d inH1IJlleni( UIJ)(Eillldz no limile 0 tlslto

Uil cruteittt VolLvldo it COllttl)Jiiio ltIt Gale (0 lIdlwg n nililtil ltlit fitlenria (Om1 IO$ltibiliclade

do credor 1)]1 conlls(lr [ valor residual dn Jirmtl tfm Illllil illtrlr(gt~altao fgtIJImiddotllioi importantf

se OS eapilalisla1 fimmdarem 0 invsfimenkgt cOlllpWndQ v~I el1lrltltlHicdot rariOllahncnle

deClarat6 sempre que t inwstinltllto 1i1lt rOI pwdu(ic pngmllth () lilinimo Iossiv ] (zero) aos

accionlstas No caso un contrao df nruit( 0 n50 (lltlljllilllent0 ltlew ttnllOS do contrato pOl parte

da firma permil ao c[(dQr didftfPr 0 prilllfiro In flla rnnGv i1f Iroduto do (mpreendirncl1top

para si surortaudo 0 CHsl) Of Oh1reflil~ii(J~ lt0) if nib ( pCIllfnO 11lt0 ( rational ulm(rvar

sell1lHl n rendimenk do ltlllrrecndimltnllt o nedor

estabeurolecera Ulll limlnr (0 ponto de falfnd3) 1baixo b 1uid rfedor wrHkari 0 rlIdimtnto do

pttJlecto iucotro)fio 0 costa d intpecoaQ_ () refrld linliar pod t ajllsI3do por (orma a obter urn

lucro esperrulo ufiD-uegatiyo pna () ofdor A folllaquomia hCldkil pmqlle t ofrrta de fuudos sera

positiv-ll aumampnLand(i 0 investimnto f IwwrJ UHl ban rmiddot]evnnff uma pattill flHtlal de riSCO

entre os diversos agentes deviuo i possihiEladr ( falfnna najr f Hellwig JIlostram que numa

~onomia com uma funltiio de prodltao toncavu ) 1l1vd j inn-lt[lIwllio nssodado no COlltrato de

l

rt(lto sUmdatd f ihfmiddottI)f 11 lIivmiddot1 llllHHlo (gt (lIkt 1 jhn1lt lIUlt1 (i l 0 ltItsO dll illforma-M

mIllPrHn) CSla difcfen~a ( mterpretado mv tnvlImWl(o df n(ditfJ NUll contextegt eom a

mestrln t((nologia produtiva rnagt (01 illform1Ao sinl~Lni middotht 1 rndonanwnto de credito entre

nivel d aedito (gt banfo sta dispOSLO a oferelt(t e aJlHl jili ft Hnpf(sa dfSljaria dado 0 nlvel

cia taxa d Juro (h11l1 1pound187) n rnd()UfmllIto I ) 11 lt1 nolligt merente no (statuto

de respOUampiJOdldade limitnda nOm~adl(n 0 nHe i 1 -iltdjp dp mdUZit a oferta de crhiito

Ouerns eperadm nail nillinraquo I)arltl iyen blhUS) ) dillnj 111 ii empresas em escolberern

empreendilT1lttntos com (Illtthlf) tlSfQ

vVilHamsou 1980 mostra que 1(vllo)o lIISI( ltil phn~at_ IlIll amUlnlo da taxa de

Jure ~Ilil d()~ lflll os (polgtlnl tim pooittVI para n (fj 1r j IP rlt ilfnVnio t~pcra(lo allln~a

poque os rre-clitos sao mnis

onerOS05 para os dev dorfi mcrettlfltal1do () (141lt) (gt1--1middot d~ h5 rvaltao Quando _1 laxa de

Juro for suficicntemente alta Mlsodadn a uma proltI1llidtnllt It- fklnti Igual a urn 0 luno esperado

marginal do credor P negatrvn por 0 lnCNIIWfltQ (l~ Pgtf~~llil lt-[ I r~) - lt rust) m_1rgmal de obse-rvaI

o projecto f positlvo por conimtlldade da flln~~G de lmr gt~r ri1df) do rrcdor tlttlHe um ponte

optimo (inLeriltlr) lIO problt)lllltt d( maximizadio dt lmw -J pht --stl ponto pode eXlstIr ou

lao raCIOnlllllcnto No asn pooibvo varia~6cs da laxf do 1mmiddot H Itloperatta5 mas varialt6es na

ofcrt a d~ hqlide~ Ha ~Craquo)Wtllla siio dka108 nit rrd1~~() dO) ritI(gtII~IIIInt() lt~1ll afectar a taxa ae jura

-de ~quilfbfio tJlfI f(UJIlFkl excepc1OtIltl1 unfirlllUTld) 11111 J 11llJldz subJatOllttgt na doutTiU3

de aailabilily do erpdito

Itecenl($ trabaUws aatl~alll Am dlfF(~ues lgtjuli 1lI1r~~)lltes lil~ (O)llO t posHbdidaae

de sahre 01] sub illVes1ill)Hto (d ~I za ( Wtmiddothb H)R7 1Ilihk Hll) UI8F) gtobre (gt cola[lso do

merraav de enhlito (Manki(w 19$0 Bfrmmk frrlkL IQ[Il ili) tgt s(llnc Q mecanismo de

transmisao da pt)l1tka m(lIlelaria (j(gt1)~1 1019 Blind I~ltt IP81) F1R1l trabalhns no

entanto llIerecem um trafalutlIlo scparadq

1 Introduction

~(h over the past two dt(ades Slggests thAI tjP rredit market has SOtne unique

features In particular the possibility ofequilibrium rationing and ofover or under-investment eLc

Muth of the current research was inspirld uy the Stiglitz aml Wess (IOS1J paper Jaffee and RusseJ

(l976) is the firs article studying the credit rnarke1under lhe asYlllmetric mformatwll assumption

Almost at contributjODI on nedit rationing use this assumption dlle to the progress made in the

70s in Lhe research on signaUing insurallle markets and optimal riskmiddotsharing contract$ Stiglitz

in his review paper (1987) focuses on the (wider) question of markd mechanism under asymmetric

information Akerlors (1970) pathbreaking study till responsible for the subsequfltnt interesL In the

uymmetric informatmu assumption

The assumption of private mformation has led theorIsts to study new concepts of equilibmiddot

rium and to question the market mechanism under the traditimla syuunelnc or perfed information

case Although there is a vanety of possibilitws of Introducing tlu asynunetric mformation $Sump~

tion (eg on the realization of tlw state of the world or the quality of a goolt1) eCOllomlsts have

concentrated on tome important caltes A(totdi~gly thl ltrtl(ture of tlus reVIew is dllttated by the

relevant literatll~ on credit markets it will focus first (In toEQftLical models and lhen on tht

credit literature

Under the assumption of IJtImiddotate mCDfmallOlI lllttrp1lt C(ll(ers all its lInplications for the

market mechanism (do pnct adjustments elimmate the excpss supply) and equilibflllm (does

it eJut) If such effects are non-lflvlaL then (me stud)fs tIlt introJucjKlll of new dements in

the model (institutions IS the term USllAlly Uised) to salw or to dampen ~he effects of private

information Thus advertlSlllg historira rgtcords collateral ek constilute a r~sjons to the

presence or asymmetrk mformatlOn The modds d~aling with static economies with asymmetric

mformation an be distitlgu)lhed broadly as

Signailtl1g

Adverse seledlOll

C-ostly obseratlon

MoraJ hazard

Models focusing on the possibility of or nlecbammn~ hy wlnch informed traders signal tJleir

mLrinsit quality use the concept of informational equilibrium (~e Hiey 1979) In this pquilibrium

Mymmetrk information is overcome and the mark(t has a pticgt for earh quality of the goods thus

heterogeneous traders or goods have different pme$ ot pnce~lligllaL Thill literature on information

j n~k~ drop out of the

ttaHsrnif14j1I fWdlal1il11S W knwn Iv ~jp)Illill I-II IImiddot _L Igt l~ Imiddot-dk nad Ih mark

pricl ffoflpds th frapp qnalty Ihcn 111 i~ u 1di~- H -1lt1 11r1IIUIi i 1- u knor as

aelf-sderUon merhalilsin whvh hnlt hfPI drlttmaflcaliy iUlltrt- II Ak rlof~ (-m(lll~ example

In the imm fallr ~JHHk(-t t 11( abseilgt (1 Slglnl1illF lSell-tN 1 - I II (pihlri I i j wlHfclu good

risks sUDsidizp (pay mort thall Ih a-lHltl~i fair prelllilllli lAd ri~~ IsCi Rfgtrhschild an Stiglit-z 1976) This luilihrmnr ((In h( dlil~ad(rij I it1jolllllC l_ lj IVTNSe gtllb premiulll may

IHsuranoee market whik till bad ns~s i(1l11IL OHs--lw-ntly ~ ~qll1I ( jirn lfr~r an exp(-cled

loss In the ijforrnalJ(1ntll tquihnul Hw Ili1lr ilfrnrll dISH~ due 10 1igtlalling Of

screening) but in the uhersf sd ctioll CiSC prilp liI(rnu_ I lh

TUIIHSl(j (971i) it-lvli titlt tltlt(j~if tQJltttjj(middot OlilT Ji l1gt 11uJlltwnl with stiy

vefification of ptiV1t( Iltformatlon lfI olhrr urds tit tlHHJill1 1 i 1 ~ (raj wlth certalilty

the lrue informatllJ Inll it a ltrnt tlIdfr drfnllillj[l~ tlljff- f I (lt i1wlllmg fI tim

wlH1 and only wlwil it defaults) he Sh0W II) tllp oplillal nllltr ( ]I-1td1l outrall for

sOIne states of lli world ixadly tlw vi I ll 0rif lUll 1S 11 ((tnl lilt) hill cmdb)tion

OtVfWIH

Allothu gruj) x~J-rc 1II~_rf(gtd illfcrmaliuI Ii 1 hp rIf] I tlh uLaill1~

lor petfectly) sjlth II1dr~ lH dnil 11 imld~lI lldWIl HI 11_ t til Ihn- 11lodfls gt

hidd(ll illfJtlllalill]middotmiddot Ill( mfrm d lk 11 IHU Ill) me I

because sltt is not flllly T(1ardj I dlIlg W ltlad tWeal t I~ HltI ~-middotdHI1i )1gttlValtie by 11

uninformed agtl1t Sine t 11 adion alfmiddot dte i ri [lei p1 (11 l jill 1 wd llgfHI I 111 j I]I) bull-r IrnJils

monitoring the inf(gtruwd ag(llt 5 itfllOllf- cr pmilll~g dlCrllll I~ I Iw led lf 3ulth I hat tlw -hmn

action is th~ on Ihgt pflnfipal pf(f(f~ n ~I it t)fCtgtU or Itl ( itd- lb 11l0ral huard pfvblplli

Thi~ pmbtem IS usually stlldiN1 in th IrRllww()Jk of tit ilIlWI-I-l-clI IIlodel III which tnl aggt111

chooses au a(tWIt wbirh Ifmiddottf til I gt d d) prdul 1 I j ( (r )101111 iUll and dw

to a nOIse It lil not o$I-rahlt Iy till rilj1al 1V1h (r1ft) j I Ih)l( (Ollilttutes a fI~k 10

the agent as- it affecLs her1m prodlldll htgt )JI lltl 10 dmiddot lui for slallllg th urplus

or risk in the rtI-tIinnlthipmiddot The PC1101L~ 1111 ItvIdJ Ifigt 1 jtHH (all he rLlgued Ly lliJdel

mfOfruatilll as 111 rlUti and Sltg -16) l]ljfI(i lllillk I Ul- IH the rusuredmiddot elfort 111

avoiding acdd()1 ~ dq)(lld~ ou 1111 OVlrltl U t~)flg( 51 hns d lillomd p1frhases f immrallc( call

make preiuus (otttltI(jS become 111ltgt(0111111 4 tlw Iwl Df )~ N(ISfS In tlw extrnue cast it the Insuran1 clJlllpani(s do lIoi sharf 1lforwftll)Il cnwerlllIl 1] r lienls lh--iwmted is tempLed

to take full co([31( and mrrkgt no dfcrt

2 SjguamH~

111 ~mHket vilwrf hUYPfgt It irN wrli inbrT11-d d It lrJ t (jHtiity tlwn fftIrS PIKes

r I)lt1 v(fa1e quality 1lwrdorc 1iIIIamp itll llllmiddotrnl Tl1l~t i~ mk hnrrowfrs highly pro

Itllctw( agpnts dr) ~r lllje[sied to SlAl1n thflf I)IP r 1l1hl Ihll Ill) rall fdrh a highltr

priceuro Cal apparently I(h~IlIIOd bql fllrnwaly ddlrlIi I--I- I ~rld (Ill Speuronre- (11)74)

shows how a fIlehalli~Jt1 (Poll h (j)l1ktr~ (pllo sort d)IFmiddotr(-lli tJjl tlf llS III Spenc$ signalling

tIlIfHOIllnCHt a P~jlr1ivf k-nt IIgt a-)lImiddotj j() )WFgt I(w~ -I to I pgtllil~ NlllrflliotJ than a Ieuross

proJucftveuro [lC [hclt JJy prodJIlg la(Hf cClltnl(~S will b If nifr as runeti~ll of the level

cr(uCtlllired) fYllJcali0H (gtillpiq(tilt (iVl or bn 18 111i)P Of IrojUlaquo(jlt Edq(ation tonstitutes

the stic-oiol) IlICcilanrHl III WA Ier pow )f IPW or gtfHdHllt I~ Wlt 11 fi nil point of view In

cIuiliurlum the emploYfrs knul- hI h Yl 0r tl1r Wj)~kNlt 1tlalillJ lgt~ i)tuJlJImiddottiH~ agents

haA Ivhievcd transui1lS1()1l of yaJlabe lnformaI n (lfP(lPr rlllfd Jgtnlll leureuro the wage

schedule IS (nIb lHfoflllil1wrVly (OllhlQfld 11111 Hil) (1111) plrIVS 1111-1 lb SInfls (pulib

dum is not sustainahlp as traders after le-flling tllt Irut (~Iw~ faJi (dfer 11 11middotmiddot (wagp) Imiddottlntracl

at the lower end oC ahPllts quality dHlJ [av Ill middot C111~ C~ ~l nfl1 II thmiddotmiddot (fltprnJ conlract

and utCTltail( PITllJO)frs plgtilll In a gHgt-ll qulhbrinIlL H111I frilJlWWQrk fnscotl and

rowni~l1d ~1]81) S]) ~~tal tlw l1pnlllilljl Iliroliwnt dugt- hi 1 1InVlt a t(mllilivf ltqlulihrium

or if it exists therf~ 18 He signalling

Asymmelnc infon))lltj(jll 1vltpound (aIilt i lt-1 PI jil flaquoflll )[ t1 ir III utiht~ the

produeive a~tllt incutlgt h OlJjlg (hraoJl wille ) I1f 1W but J ~lgnal tlw agrTlf$

quality ill fact the slgrla1l1Jl julibrllltli IF rc 11 IM ~IP rkHl(d 1+pl una ill ther Iur

taxes or subsidies to clIltratG tIl( sanw tliliiigtrHlIll itlli tho 1Id to lllWSl jlJ spllais 2 b) lhe

informed agelllol Thus III Ptescott and lwIgtwlld (llt1il III liIrt(middotmiddotptiOlf in Hw signaHmg

environment does Iwl Involve t()llIplde SrfVu-alOIl ()f In ~l there IS no SIIHtling) Tbis

tCllull supports the c1airn tfrnf lhf ilfotFtliul 11dCnliq UJI l wnl) bltwell th priate

alld the social mveslIlKlt ill th Hgnal

In Rotlis(hild and Stlihl tuTG) aud Wilson Eli71 j ii 1l1mllly l)f lU5UJtiVI or wvtOragltgt

an agent demands can be lJFed J firms to thClr ad-anIRgi _ III-h rlFik agPlJls demand greater

coverage the insuranc(gt company ltan olltr high (n-q _-Julncls at hlgh(r plmiIJIIi But an

vtuarially fair fullmiddot insurance conlract rallHOI Iw Afi~ t low-t~k raquog(nls h((all~(gt Ij alflto atlraos

Itigh-nsk agCllts and hfIl(f tliB firm mJlke-s an Xpecle(l k)lt from slJch c(mtractflt Under free cntry

the set of (Qutracts offered by firms in lQtitsddld and Stiglrtl~ IlloltllraJtCe mode IS such that (i)

2Suppose that prootlctlVe 3gcnl~ make calcuation wilh Iend~ and papfT nnly tr-Jt less proouCive agenl$ fl(d

calculaIDrs A lax 00 caiculatonl (an be enough to separalt lhe- helemgne0U5 agents

10 cOIlIracts Illk llalvp (XI((lltd lr)li(~ alld (il) II nlIL I 11 IItlal ltUlll[(( would make a

positive prolit if olfer((I Botllsdlild and Stiglilt ~how (htt if IIIlt 111 Iwtween IIIph alld low risk

is sufficiently iarge then tlIPr( is no CqUrtlOt Nash fgtql1ilihlllllll 1111 in anolllfr Wily if a firm

assumes that tilt contract Its compdilnrs ofTer do 1101 d1)(111 II Its )WI1 llct()lIS Illill for some

contrarts that sfgtparate I]w tXlstJllg risks ltat IsfYlllg (i) hn IlwH l~ 11aY8 illj()LlIltr cunlrart that

violales (II) III particular a separatillg rqUlliiJlIllll C1ll I Ulldflll I~ a IWW l()ollllE (ontrart can

be introduced ill tlw llIalkft willcit IS prdgtrr] by all 1)2111~ ltllId 11 I~ Irolitahlp to dn so In turn

gIven a pooling (ontrad Ihtt bffgtaks tW~1I Ill (Ill (OllSIrlld ltIlIotll1 Oolltrarl Wlll(h lS prcffgtrred

hy til(gt best risk aut vloialfs (ii) i p CllollL thf poolinl z( lfnlil Imp (Ill(gt lTlarkft odds line)

the marginal rates of sllbstitution differ owr risks and ilOl t IlOf I a onl rarf lrfrfrrcd by Ill(

low risk giving pU1Htiw proril~ whcn only low fisk huy II (~ 1II1shlifr and Riley JJ79 p 140G

1408) but then Ihe pooling WIltracl dO(fj lin IOIl(r brlak (gt(0 a tiwrp ar(gt ollly high risk Tllf

non-existence result IS confirlllfd ill a )tnfral fquilibnulli ()lllld IIIH framework h Prfsott and

Tonwscnd (19SI) lIow(v(r Hellwig (10R(lh) arglHS IhClI dllll all fw a pfffp(1 fqlJilibrlulrl

Tlw Importanl poinl Illadf hy j IllS self-sPIfrlllJll 111ltFilllf 11 111 Itlf lIlfnflllfd traders

have an interest tslgnal Uwir quality throu)(h )IIW illldJ ~ 1)1 liII Pfl (middot111lt111011 ill Splt~lIce

model and quantiy of itlsurancf 1I Holilslilild and Sllglilll ~1j11 [0l1L1 IS tllat a pooling

equilibrium in whidl the pricp rdiPcts tlw aer)middot qllalll (r 1~k middot111)1 IlkI) lliall a separatillg

equilibrium 3 In th poolill)( equilibrHIIH nlliliforllwd Ir1r1rs r 11 11 I I ~(

3 A d verse sclcdioll

III 1lw ISPIlCP of Sllllilllillg tl1( mark pnrt I~ 11 1 1-1i- f III middot-IS1111g (jIHlllty or

risk tIllS lack of Sfpariltloll of hetero)e[lnll~ agpnts (nr 1d~1 II~ III 11tlJorlall[ ltJllsequftle on

the market tt](chanism As illuslraLeJ ill Akcrlofs klltun -IlJllpi (ll70) ItI til(gt R]selCe of

signalllllg the marklt IllCdlClllis1I can IIf 11lolwfallp ltII 1 1I 111 ~tllprs of low quaily goods

are attracted to the market depres~Jtlg further the rifF 1S tillt nln~t quaht~ III the market

dWindles) which makes tlw Iarkft unatilcIlVt to sfllfrs of hlh quality gouds

lollseql](lItly the pn(( of a illarkf1 IVIIh IIl1dISllllgll~iIIk iHtIO)(lw(Jus lrajltrs rdiects

and determines the averagrgt qllalily of Ihl lllillket In iIISllrall( 1l1arkls an increasf In the prermum

makes the low risk to withdraw from the insuranc( pool 11H ( aSIII tillt shartgt of high fisk in it Ihe

average riskness of thf pool deteriorates Splf-sp]ectloll IS a prohltlll a~ 1lle iti)h-flsk or poor quality

will mimic the good risk or high quahtys beha~iolr sJllce tit) htlidit [WIll lower premium (than

3This statement is not true when the proportion of low risk is high Pooling risks as a conslIained Pareto optimal outcome can be rationalised as a Bertrand competition (sec Hell ig -R6blmiddot

the artuuri-Iy elir cud or lnyw 111 Tws II is wd l~ t~ il~t f Illlt 111 risk 10 rtVtal

himself M sudl to do $0 lads thf insurer (1 leJder lC inqvsf ilier n or even to entirely deny

coverage or loalls

In VisQn (1980) whirl is ( rI(xfIinittion f kpth~ 11 r Ihr dmiddot tflilHd tllrVl is not

necfSoanly downward sloping wlwil dIP innmiddot IS an iwlic1tN r 1l1iliil IS tll-middot puce rises sellers of

lllgh-qqjdy goods are atlrtdld Lgt til market ami ~o tll( nYnl~ qllli hl(ti~~s Vilfwn shows

that thete can h~ multiple fqmhbrill in a rnarkP wlIP[p (Il IW rffirIS til wprage quahty of

goods Iquihbrium is theil l diamptriiJutjon of pflces father th1ltl lt1 suglt~ prkc md CX(CSi) demand

can prevail at SOIIIt or tigtOSf prl(til

4 Costly observation

Ontik the fltr-fdlllg r1H)(fgt~ dlaiil1g with IIlar r-lIiJdJtl)ln TJllsrn11 ltg7t1l studies

the charact1rifgttlcs vf fI biLral traJe (0ulH-t wlHl U 1111 IllforHlhli(lll ft je ohfwrvd with

certainty at scm( n)fit ty tLf IlIliuonrwd pifty SIIlCr- II i ~II) t lt10 lO tliv jJtjilli0tlhd agr-nt

wIll lot al Vi nfy f h lnYlL Ilfmlllill inn ~JIli 1j HUll q - t-rt ptjMlI hlends upon

an annOHnltemellt wad by tltt mfQfllHd PiHt for til( ctat(lt uf 1I1(U)lt vdwtgt II vlttlficatiol oceur

Townsend assumi)$ thnt tlif uEmfofltwd pnty - P~)oT in- fgtas~ 1 i1 11 tIll p HOJHIIIfnt ma by

the informed and Whfll ve-rifieaticll (Jts all the infono(o 1lt2lt1 jiaydT is IranSflfftd to Lhe

uninfotmed party As oLservntoll nd ui 4 gt)1 tlw HFPldn IFI1) IPS 01 h~ ItIffirmational

asymllletries make contingent onhacl-$ (1 baou 011 tllf -3-jnal U(Ufn-np (f 1it( sLah of ttw

world) unltullltIgetiL in realiy III Huth nntfMS camct ljp -nfrnJ lt)r stnes or the wodd gtIlticb

are not puhlicly obrgtrvd

IIgt e e

Fig 1

If 0 a ramlom vanlLl t privately ohsenj [tlIJ i) Ie Ill ~niigr vertlkallon) pomt

wherreby fot an atltiHntCtIIltut (~) or the informed a-nt Wlllgt1 I ]nwr tInll I) the uninformed

agent win verify tb aetna f) [SlY Fir t) lhetl rm a (j er1 Ibm l bull the II1lofmed agent has

no mceniive to Imnounlte an lllr tbm 6 III dw IlHilonW( IHtly ill ettty tli cllPating t8

unraveled and worse al tl( producton grf5 to tJw ucncrnl(d l y It) otwt worJs since the

uninformed agent olsctve5 the actual 11 when il lt (I bull t1wn IIlt no aw fur the informed agent in

pretending lhit 0 lt D Whll it if not Wh11 Ii 1~ vllor jllllll Ill( illlf pnltlt tIlt illfurrned pitrty

lias also no illcenlive to ilc1~t1 a Ilidl 0111 9gt9as Ilt HlIf de IIldctltllj agent wiil be greater titan tIl one asw(iated with the true VlthlC or 0) wti hdH( tilgt informed agent will Lhrotbfuily laquoweltl (J (0 () j Tlms wlwn 8 lt (I~ Ih rljtnd gt mrflliv( (fHIIIHlIihlf i f bull the

infortned agent hAA no Incfltiv( to Ii or ltmy I ft bull If)wn th iHfoIllld agfnt is beUer II

by announcing fL iJ = O as no tlnI~J(l1l wi he IIIad itnd Sib rilll k p jlH kUlllus 10 himself

that i$ beeaus-e privailt iilff)rllllllinll is fOltly 10 ol~tgtr tli tNl1]~ uf tlli bililkral (ontract cannot

dfpel(l Oli 0 for 0 gt O hi 0lilfr w()rd~ tiw IllCCllli ultllliLk nuiPllt 11 ft IUifonligent or

c-onstant payoff contrltd ill laquolie Of1O priiflti(lll TnIWLd 1 5 that ~iJ thf vtifhation sct os

not empy alld dfpend on IJ verifj(fltiol ost and (H I I Iiilt (llt)H~ (OlHla Ihle fontrat is an

optima (ontrad The last pWptrty is los howcvcr WiH 11 llw ltrib al lOll rule i lIN dewrminisjz

(g random all(hLingi Wampskalnp (HJS7) ~~lDWS thjf ttw )jI1gtll ngttifirallDtI tole 13 no longer

so wh(o thgt1( bs more than one good (il-stntltll ill~olvjg 111 pcrilJ(liolj [or allY posslbk

inSpfctlOll IU given ()hscrvatioll (uss 011 ntll find tllotliltf fuk that weak (PoretoJ dominates

the formltf 4

t 1ontl lmzHrd

mforrned to 1b IJIHtlfunwd Vnt

the saOle IS tnH Ill Ulllllklllhd ngtllt IS 1111d III r(JII r gtdylll tlk irw Qldlty of a

good or tlw tfl1 Iyl pf ttl Gl1snt Wl ~laquo 11[OIIIF llJltI I ~1I1ilt middotr miIlH( dl j IW10Uf

of lowerrisk agclts

transmiSSlOn of mformatlOll is iLfompk til elllinr()illlPj h I InL (rJi tit trae realisation

of the gttate Of the iflk tY)1+ of 111 1Ip11 [t tillt ildrjlld )1 III Is ))1 full hfufflJ from his

unobserved aclJon hI lin all UHTlltivr j) xlluir (jlll HlIogtjJI jl illfnrmit(lOli Pg h011HS

art nnj o(keu pruprrly hrrldsP I) HI lLitlfld ilJiIlI 1lt1 1 16 i H(gtN turtl-olf hen Ii

IS not needed bcause it ~ clduded in tbmiddot ((Ill j ( h blt (ClOllk lt10fS Hot have imperfect

mfortuation but an In((mtiv( flfed exISts In SH(h (00P 11( ttl1HlI~rmed agltht (ih prionpal) may

45m f1t verEealion ruti dpf1Fls on llif ptu-tU(Hyit~ I LCti w)ls Jt IR ltlwl1 jnlgtihlf to

outweigh the Cl)st of 1J1lgtpedwtl Jilttated Iy til hH1 IwrklflIH1I1lt cmiddotf one g00d by til decrease ill

the need of iTlspectloTl dldIN1 0) tllf o(hr

0

prdlf tu ~lgg(gt illlo lIIunit011lj h Jlls f t Ilfotll Hl r fl tl1 an illottive

IIlCthalllsm to laquoouvre the inf(Ilt~gtl tllP wfqrnj lhrl In III Img his nlt)S(rved actions

(locking doors windGW1 et) Vlcn wmrletc mOlubfl11 $ ~Vl Ivlf anc h~j low (osts (eg_

metering the jj(at u$~d) then uo lHlaquoldmiddotivc dTfds ms) 1 clj 11 llowever full observation of

Mtions IS cltIfr unflwe r -xpensin

If)rlllfttl(II as ~he bov

heatlug ()tampl illustraCH_ In tbf in(tlt ~I (r Ill llfl ~ i -)lltld rano he Hfoncilfd

by chaugmg the terms ()r tradtmiddot lUI iwe~lli pt()i)1H (gti 1 - Hkulty [or tilt price to solve

the incent) prohtfllll i~ lUI trgt (undalllPlll flqIH~IIHltlty i lrfrhrNl For ~xample in an

tnsurance contraoL wneo the ()IlSUmer bu~s mOle lISUfl1r dlw peuJs less dlort to prevent

a(ctuents at a giveu kvd of effort the IlHHginal willingl1( i t 1 f lIlor in~nrauce is llsually

IlS$Ullyend tn hl dprreacmg in the amfJUIJ of insl1rawe lv euroll llr([ldy has BHt the decreastgt

II trort due to the llIcrcrugte iu the qUflHiiI of 1ll~11F11H ln1(I1 I HIrltrlt~jli til probability of

all Vlltlent 11(1(( thr wl~lJ1lgn~R tn 111 for iililtljollal IjSllrHllU Iii nIt~( lwll tlis (lr~cI

outWeurolghs th above one tiler( j a ll(rnllwziud ur 11((1111 1jj~-ll1

The IHSllfliJlCt lll~ralur( on lllor1 IllllHXd IIt1S t1tlpilai il 1Wf II tJw 1lIllFrffrt ]f)

formn-t10t1 J$pect Under thiS lSSUIIpl101l the 0pli1Jl1l nskmiddot~htv 1I1rarl Gill 11lt aJf1cted by

motlitoring the unobservable actIongt With full (hSfVlttl(1Tl tlv pllilhl ~(gtnjrHct IS tht on In

Whldl tho flsklHulral party lakes up all III cbtillg ri~k jSl1I j~7JI IWISlt)()rt 4) in genmiddot

eral the firsL-best contract (all always h ilfliilt-NI by i fOfrillg H1l111(1 thHt pllciliz heavily any

d)sfunttioni[ h(haviour whlrll Ifgt ktr-(lfd Ill ~w(oH(l h~l Ilri(1 dnt 1 lllperLgt(t mformashy

tio) ((tn be Mbitrarily tlmw to tll( flr( IWII (lIilari if Iw lJllrllf1I1Imiddott Pilri_ (Hit ~klt(j rIW_ltlng

or shirking of thc mformrd party with POSlli( IfobalJlity I kFJ~ anmiddot~ HiJVl iltl7H)_ Holmstrom

( 1978) hmvs that any addilionai iufortlllt il1 lILo t I h ill r llnmiddotJ I ll r~ ~ W)IOI IHrN impftfpfJ

cnn 1Hgt (lsl to adlieve a (o111ra(1 whirl is )fWc to tlIP firs h~ 1(1 Shingtl W79hl hM a

similar result if lhe illrOflJJ1U 1gcJlt is risk HOW til )rdI1l1111 u~ ~htflllg (CI[rad dpends ()f)

any information the uuiuformed J)ittly hM b()ut th( mflltPd IHrt l(~I()ns

The moral hazard pmblpn m Ihlt IISUnlllu )l(Ilh1 lt gtIIIIQUlldec wwn thlt- IlLsurer does

not ohslaquorvp the hmnunl ofiflllrllllff an IIlll7fd alradgt h 15 Ill lrgtnIVf fffc(s Arr 1lttsidf of

the insurancc c(Jmpaly~ tnnlrol Arllolt 1I1H StiCitz HJ~4 1)~0 Jlld [I lwig 10B))_ lleeause toe

levd of tafl or effoft ill avoiding ar(llIt dqwlIdl on dIP iI-H(lLltf Hw aslt1I1 11M the possibility

an agent has to contract wIth molaquo tllaH OUt (OmpaHY alftcii IJw t-troiital)lt~y ofth conhads the

insured already has 1 he failure of eaeh iHSfHtrf h)lIlpall In lntfrnalif tle thovf extltgtrnality

of a deltreased Inceutive for the illllurel tv lnllt up dlgtJrl Iad hi nd_Lming of lhe total Insurance

availat)[( in tll Iilnr(~ (lklwil 11ij lrnl)Oslicll 1 I Ill lIP bwrvtbi)iy illid Arnott lud

Sliglit 986 ror the oL~ervabilitY CtlSf) tblt is the HI lllUlJllt of illSIU3tKI tvilable in the

market is such that insnroo agcuts provide SOIlleuro tITor~ wltidJ llINlS the eXlsting insurauce contracts

to break even or to fllve pooiti~~ profit8 Iwi tlw tnld Illfjwl or insuranclt lUI agent buys iS observable the contfittt an inslJrauno company offrl 1i1 it l~ requlftQ to break even (ie to

stand aloo) halto be sudt that tlw Irnnillll-IJ1P(it rPl UdUiS a PfO nut or effort to

reduce th probabllily of an icrident lwn additl0lal iIMl-middot IS vai[ith1e however there is

a problfnt as It aITe( thr iroftability of all ~xifdilig (uHlrHoIS aWl 50 thfSf contracts wHi be

withdrawn from the market with 1(5 IrtHJrl))lfl agrnlamp an WefS orf and will Hln~as( titeir eITort_

But when every agejt is required to l1al with oldy lt11middot lOHFlIllaquo iompnny (L( the exdusIlitr

eondition in Amott and Stiglitz ali su~h eXerllalit) IS wilslwd ItWhY and the company can offer

wnLrads with craltHmhidization swn ttHlt tl IlAn prFftli tllf ~qljjlibrnon with Qbservltl-bility

and exdusivity (Hellwig ]11F3 Proposition 5 I sit(WS tIll 1 if l Sllgt galjf prrd quiI-ibrium)

Vhen the decIsion to rVf~a wtonPts ldentily 11)lt1 fltHillg I mlgrecllll titeuro finns strategy

some (lJnpanilS will noj supply Uu IHbrmlltioli whik pJ jast tw will pubhdw nil the relevant

mfOtlnation lhcause he- COnllHlnllS Ih t )tlh s(cre ulpknwliuy Illtnvts mak~ 11 profit only

if the other companits contllHw to olrer tjl( public r)l)trlt-lr~s twy L~n an illrentiw to keep tlHlf

customers purhases and id(-Iltity SP(f( This ejJr- apll11 Itgt til tw f exclusnlty $ueh tha~ an

insuranCe comprmy can Ctoss-subsidize t[t- diffrftmt laquo(Jl]1ihlsol1t hallY indnidual

If cQmmunkation among InS-Halit ~OIHIHt~gtI i~ rulf (Id IJdhl~ (]Ptlj shuws that an

equitibrium with ratiorcing edd~~ rhi~ jllililrllgtj Ulll tw IW~II 1ruilts bill Ill) ntw firm enters

01 there are standhy nnhacllltt nnkt jtl~ (-lllry ImprofilaI ~Udl standby COIlracts however

are lot acttlally tradd )ll qqiliiJrnJt rHh tltlgh tlt lldikJUlll III snrl markets depend

Oll special assumpliulis (e rxduslnt) tmdhy cJlr(l~J II 1]1 okrvatkm that a market

provicling some InSlritllr- h Irdff1d t til( one Idh 11m It lit is taljOttlng is ptffttted ~o

zro imltlralce ilttIOUSY hutJlt 11lt irnllyeniilinn of 110li tlSIVI (f lllihriUIH wul tht Ulsureds

purchases ate ltot puhlk1y ob$trvabte and when ther~ i~ lin (omolHniration among insurance firms

6 Credit tHtioning litclilturc

VhfOJl thf banknlf)middotry proh1ihllly l~ not iii t llt kll0HJ lhat cjJpetition ummg lenders

implies that JQnus Will dilkrHt kmkntpt(~ prohnLild II[JI Ip prwed accorJjJlgy (eg til

Jaffee and Russel U76) in otlw1 wQrdl SlurI IOillls wlh difrnent banknlptty probabilities ae

different ie heterogfIH-DUflj goods5- there should ia (11( pri for aeh typ of loans where the

~Thjs is the approacn taken by Keeton ([9rlL

I~

type rerer tQ the bankruptcy prolgtabilily NOllilllllt plinllg IOW((r ltan II) 11lt mld in some

interesting cases eg in the Stiglitz and Wf15~ 09S1 w)()tL tiltgt tlsklnelJl of It loan 11 privacely

observed and so lenders in fact fUe publicly indistinguishable potemiaJ borrowers similarly in

a principal-agent model with unobservable (or impftfe(tly nh~ervahl() dfort thtgt credit eontract

cannot be contingent on tllp riskiness of the project M i~ dI)(llils nll tit agelltll (the borrowers

unQ~ervabe effort

Early models of tredil ratlomng take the tltzgt 01 Iii lofto ~l i1 Hgoi11 of the quality or

riskiness of a borrower For example when titlt bankruptc) costs arf given tbe dtfault probability

increases with the size of the loan If the leader cannot dlitlge different interest rates to different

borrowers then borrowers rfques~ing larger sums ate f8i10hd bc(iuSc su(h loans are assoiatlt-d

witb negative (xpfltted ret-unt trofits) for thS lendtr Therefvrp ratiomng QCUt1l not 11$ a result

of asyrnmetrie information but becallS~ of an exogeHfHls (gtnslraillt (pg lnterst rate (Hing

regulations law or (ustOlll) forbidding Indft$ to dLltyen( dlffflld tte9 of Wtffst fQr dilfNent

clients i-e because the number of wnttlld aailablgt III hlaquo fwttket lS restrl(t-ed I7xogenously

An upward sloping supply of luans schedule refleds the Il(lPasmg nsk of dfallt l)$ the 103-n size

increaseuros

Jaffe and RusseJ (176) lJtccrporatlt MjUllII01-rk ilbrmation in the creJit market witiJ the aim of obtaining credit nlhonng WbFh IE dcliHed jl 1 4lHtlj(n wher a bOffowr fe~ives

less ltTt~dit than is demanded their model is all agtIIiltlti01 or hI [tn bl1lthikl tnd Stiglitgt (HI76)

insurance model Agents live two periods and use the capIta IUiCt((middott to s)1()oth their (OlIfumptioll

stream Borrowers are of two types honest 011(5 that ar~ a~lmlCd t() aaYIi rlpay thbir loatls (they

onl) accept loans that they are sur to repay) awl dislwllcst ()ll whu will rfpay the loan only whfn

this is less ~ostly than ddaulting Sinc~ Jaffr alld Russel l)JtUIHe thaltlc oxd of defllulmiddot is fixed and

independent of the level of tltt luan theIl for a gnell iulprest rate tit cost of repayment and tlw

benefits from default rise proportinna1y with the amount ]oTtowld whirb makes the probability

of default increase with the size of the loan In effect Julree and Russel explores the incentive

a borrower has to repay tb~ loan Iwn Whll she has rlough wt11th to meet such payments ij

With free entry and competltive lenders (jt the zeromiddot prot( (JIldilOll ror the insurance firm in

the Rothschild and Stiglitz (1976) model) the lttedit wpplJ Cl1d IS a hOfltontal line until it

reaches the point at which lilt dlSllOlIeurost bOJtOW0t6 ~tllrt to lltfwH Thereafter the shape of the

supply curve depends on til distribu~on of de~aultcrs J hoe supply (lineuro is given by th( Zeto

profit condition for lenders so that all rcnts accrue to bOJTOW(t5 thus tJ(1re is cross-subsidizatIon

tiThe case of unwillingness to repay versus hI inabHiIy 10 [paJ e om (dlJe eg W II crop faIlure) hu been In the centre of the deba~ in the recent literature on irHermui(rlru ltiebl CflSlS (sec Hellllltig 19S6a)

0gt [

Uoder th ltSSulllptirn that fnllds Me scarr vr that tlw 1 IOrtl)1I of dilOnest borrowers

IS high) the umque credlt market lltjuibbrwHl a w 1)111 WIfF Ibgt supply curVI of (fedit starts

to ris this result dITel1d (il 01 thl ilsymntl( iHlvlIFllpll n1ll1l1ptl()O which predudes the

jnJlf from providing dillerent (ootrllrts t lIliflnsl1aily dil1(gt[lt ior fO()1 who are oevertheless

undlstillguisllable to the kmJ-middotr illid It) 011 til frff Illry Cl~~illl[ti(lq liJw bfgtlow depicts

a possie (ompNtiw equdlhnum III wlIrh all IHgtHlwut p igt II loan L and paying j

thIs mtlres~ rate rdlecs thogt ~(htlhill~ uf d1filtl t lj tw I)pldall of borf(ltmiddotrs as It IHogtJdes

zero (gtxpeded profits to Fntlfflt 1)0( to rr-( amp1Ii f)lt tad 1[ JUlltkr CfHl offer a (patrad wIth a 10lin

size lower than L ami au iltnlsL rtll j~r tha1 It rllh ngtnnltt is preftftJd hy the llOI1ESt

borrower and it plOvides IositIH prolil jf Ihf IlfW Itowjel tf 011- honest horrowers choose it)

such a ~ontract heR bjow 1le stlpply (ljf DJhollfi h~n(middotwp~ p~~et lbe vI ontran as they

are subsidized by tJ1P (rgtgtnminil1gl h0I1-(81 bon-owers hfu( Ii onlrarl (V i-) Ih longer breakfgt

even and A is not an equilibflulli (ther~ is (IfmiddotwhciIUll) If IIgt ongtgt (oatrac IS fll]ow(d (ie 110

separation of types) 11 is the point thai um blC ~u~tmncd IS il hmiddotgt Inlr competitive efpittbriull1

and is ehataetltri~el by rrJi~ tPtlohlngti A HjjfHlilK _111111gt11lt1111 I~ Hot IU15lalllabl hecause a

borrower know to be dishonest wit be rcfugtpJ ltilt Tlw Hh~Ltllg of rationing is that as thf

loan size is smaller th proportion uf defnuiVtS blow Ilwr tltgtlb(lufnlly houts horrowers are

subsidizing less dislWllest horfOwlr But1 B llw ndlw111 qjldlii)jilltll is chnlderized by zerQ

default probability OOf pfuiftoll n this IoltH 1lt Iln Iw wj mukt fwtmlks bftwCell the

rationmg equiilJriul B al~d tlk pooling ampqllilihriulli A

AHhOllfh not rltl(nglllled by Jaffp(I a1ld 1tl~s(1 tllr III) I I)()idlf andlwf irgumenl

Jeadrni to the cttdit t(tlloing p~81lt +arly rlf l l1dj 1I1f(~ r llt J~IdBr~ p~ fr l(Jw default

probability loans i( wlth illdilT-rnff fHrVtSiLgtitl Fg l j 1)1111 (~ Ihe prdltrrl (fqudibriutnj

contrad rot lenders Wi it HarlZt~5 h_lr utilll) S)J- (J II jllkmiddoteven nmsLr-unl At tlw

interest rate glven by C mrrOHtS hfgfgit( dlllltwd I fltif it ]ilphN loan Sltfuuplying rationmg

Stigiitz and Weiss ( W8 t l shyly lt1(1( ratCllEl Hlt I L lSI f lllMrentJy slmilar bcrrowprs

being treated ditretettly in ltrltdlbr ~I1lf feemiddot 1llfl I wrs do not and ltII if a PQLenshy

tia horrower wtllOnt loans alrers to pay a hi~her 1IIt(f(Si plI iJ( llIdtf will previa additional

credit Similar borrOWtf fJwallS that ti1rrl IS (gtfW)ijally (j)jf nltl11 t011lrlct H1 II Ctqit market III

particular tbe size of the 10Ril i~ Ow sallle fot ali bOfrCmiddot(r~ d helllt (~ the 4HRUil) of credit (the

analogue of the quantity o[insurIG III HtvhlH iH~ -[imiddot 17 il-lHiU1(t modd) ilt(5 not funlttion

as a setning devIce Slight anj Viss tid alPe two lrgU1lr)ltlt fur fquiliblitllll (reJit rationing

II

o

s A

B c

oL-----~------~------------shyL

L

fig 2

in a competitive market -Ilb lsYlllllldrlc llljofillatiull Illlt i1_~1 H~IlI1f1l1 IS uamprlt on the adversE

selection effect borrow(r~ tie of divers types (wilefE types aemiddot iIIYal lIlfOflllC1tioll) and given

their type their wilJinglwss to dCtlllllld a loan IS a dccrtaslll) till tIOl of the interest rate le

higher interest rates give lovff pxpec(eu profit~ for a giveJ[ Iqw III III Holhsrhild and Stiglitz inshy

surance environment an increase in the premium leads low-risk llldJlduals to drop out simJiarly

an increase in the interest ratr [nJers low-fisk borrowrrs pXlr-lcu profits neg[1tive before the

high-risks one Thus higher Interest rates leads low-fisk horroW(fS 10 drop out while tile high-flsk

ones remain Consequently there is an iatcH rate whirh lllilxilllins the lcnders expected profit

and for which the income pffect from increasing the interest rate i~ balanced by the deterioration

in the average riskiness of the pool of borrowers ill other woJs til( supply of funJs curve has a

mode lIenee the credit market can be characterized by excess demand III equilibriulII as lenders

profit more from rationing rather than from supplying the ftmounb demanded by borrowers

A borrowers willingness 10 demand a loall depends nIl hislirr typE and on the interest

rate hence it could be used a a screen by lenders to estaLlish the true quality of each borrower

However this is not operative as lenders canllot offfr more 111lt111 OJI( contrad (recall that the

separating equilibrium is not possible) Vhen a high-risk borrowers application for a loan is

15

rejeded it iR Iot I()sihl for Itl1lilkf to indun flll 11HaSI In w uppy Jf funds ~lflce an orrr

to pay a higher Ull~tst ratgt is lYfe tewaEllg and rationally thp IHJgt will not provide llJly credit

(LC a loan to high-risk borrowers has ali expected loss) A fixed evcl of collateral cannot solve the

adverse selection prohltgtm ithtgtt with it positive but fixed levp nf n[JaLrraJ in the loan contract

the borrower g PXptklti lffllHs M(gt ~till an lIlCreasmg fmdioJl )f hIsher type for any interest

rate It may happfHl lOWtgtWr- that th mode of thf supply of ((Idil tine 11 on the right-hand

stde of the demand (urve ill whkh ltas~ there is no ralioning Hewl Stigilhl filHl WtISS need the

additional byputiJesll that th12 credit is scarce to ensure that fh mode of tn supply curve he 00

the left~hand side of the demand curve

The second argummiddotnt in Llleuro Stghlz aml rfisii llJ)dmiddotjllt imvyl on morallHtzartf or ineeutive

consideratwnlL When hOfflt)CfS bave acces 10 a largr poo of projects wlIL dHferclit probabilitits

of default an ll)(raltlt III the mterest ElL has a negaLlve elfect on tJWH xecL~d ptofits for a gYen

project default ploahili) llfWmiddotp til bormwf hns an InnHv( to adopt sonte o~her ptoject wi~h

heavier tailsS lhis inceMe~ (rfsp decreasfs) the horrowers (~f$P hnltlfrss) expe(led profit

All projects in the borr0wers inVl~stlllen( pool l1a till Slllll 1lHm am hence the probability of

default given ~h( inlerest raV increases with tIll nskJn(s~ or IL~ IroJf~t For small V1Hiatlons in

the interest rate and in the ni()ulioll of til density IllI of til pf~Jects probability distribution

lenders expeltted prollts decrease Thus It IS nol III thlf tntfr1 I l1l(rcaltlp Ihe int~rest tllte

Clearly the incellllv effect I less seven when tb- n-rrCWJ jilt sum tak In tIn tUVlstll1ent in

fact fot asufpoundkirtltly high collateral the borrower~ and tlH emJr ~llIprrsL4 wmdtle To predude

this Stislitt and f)IiS intmdurl lgam aI adVl[St selcdIOIl dfrlt) If hvtrowltrs are risk averse

but differ in wealth (wffilth [1gt privately observable only) an ilrrai III ttl wllatffallll(tfas1 tli

houowerjjj expedeltlloss ltcollsequently it less wealby poktlttal )fmrn 1Il(1 dwost not to invest

becl1U8e of hisher smaHvr fIsk tolerance COIlversely the wealthy hOI rowe can absorb a higher

los6 and a hlglJer risk Le 111 Willlllg to adopt a rlsKJer proJed than lvmiddotlf wfalthy ()~ For a giv~n

leveJ of collateral an inCffkSe in the interest rate drives oor th lowMrlsk borrowtr (i e the less

wealthy) who chooses proycls With a higher probabIlity of SlC(e$S Similarly lQr a given mierest

rate an increM~ in ccllakgtm drives out the good risk bcgtrrowerll Thr-tefore when the lender IS

unable to Identify tb bOf[Ultfll typs there can Iw an intifflor nptlmum for tw collatpf3j That

i6 3n incrense Itl the wlJatNaJ lllcreases tle average risines of the pool of projects aCopted by

the borrowers Thul) the adverse selectIOn effHt in tlw )resenee of moralliazard (uu onstraint

the use of collateral as an incentive melthamsm_

8When the distrlbluion hmetion~ are symmetric a flalter distributIOn has heavier laiis ie with more probability md way from the centre Limited liability then makes the fat tails dlslributions more attractive to the borrower

I

DtSter (l)i5) shows tim if I hf khde um OliN llWfgt lit]l ullf typt nf orw qntfrt with

variable levels of collalrral and iuteultltl TaWIL tilili fI fP3filtiHP equilibriulII exists Jll which no credit

rlttionfng occurs a contract witl it lugh ltgtvltgt1 of (ol1ltteral and 1 low n prest rate i~ preferred by the

low fisk borrower wlnle Ii ltcontract with a low l~vd 0 lllltr and) hIgh interest rate is preferred

by the Illgh tisk one For the kw ris U0fWT the pnit9 11 th lttnest rate -lornpellsates

enough for the incrcasr in till Ixpltckd ((81- f 1( ollakrl If ~b pTobahay of losing it is

suf[kiel1tiy small 111 Stg~Imiddotz ltltv] Wss (InG nrlr1 is1 U-POI tn Lh( nlcisms that they

atiowed stuJied) few (on~rats 111 the loan market III tlltr W()fli ~B(ster-s m(ssag~ IS ltswcntially

that with enough fr~dom of contraftillg in ~1e ncdrt HHtrPt swh as IJsing (oJtal~ral and mtertngtt

rates dilffNmt risk types can b- snelnec cu1) ill i)articuJar ~lCY fgtxpand then (1981) artide on

the moral hazard plus Advet~p Wk--tiO1 (trw to mdudp tht CIS 01 J)rmly varllttbll (oJlaletl1 alld

interest raLes contrartii A pooling tluilibtiuOl with ratiollil1] xigt ~](r( lh-e lev of (()lIateral is

equal to thf p)or~t bOrrOWffS nOfl~ltlHlPU) we1th When 1fl1drr Me Courn0t~Nalh players they

id-entify onltiitlOns for a pooEng tquiHbrium to bt $ustall1ablr The essence of Stiglitz and WeJlgtlS

(19S6) ia that more uegrefs Dr ft(~edolll (jg mote nmtra(lsl Jo llt Ileressarily salvI the Hlcenllve

CIm selection prnblem as 011(gt can build a stdti(l(ntly cOlllplicaL(d llKJ] 50 Lhat the new conLradlgt

cannDt wpe with the Ulcentie alld Iltkrtiollllfcrlll than and ThakQr (H)S7) obtain the startling

reault that a ldghmiddotquality borrower wIth unllmlted wHater] lllll b( rationrrL for n given contract

that extracts all the surplus from 11 highpJ11ity hOrtIlWt tl) lmvquaity ow l~ also attracted to

it $0 that some highquality borrowers do not ftltdv( loall~ Ih-middot IlfU1k lilntlD ~hiflge tll- wtetest

rate or collaletal without violatrng the retwrvation util1ty J ()widp )]lportullities of high quality

borrowers Hellwig (19RGb) shows that by incrr t~ing t1ltgt nlllht of lhy~ ill thp g1llwmiddot bdween

borrowers and lenderlgt the pooling or the separtltilLg cqUilJiJllUlll (lin Le singled out a perfect and

stable (in the 1ohlberg ann 1Jertens scnsej depcllding )n w)( rhys filSL

llar~ (I9S) notes that l1w ITimiddotdit NH1ttMt lhfd III 11 I-Ij andt-fI raquoJlIfrlS private

information with respe(t to the return on II project 111111 tllf il)Vestllltllt i~ oolvnlt lout the value

of Lhe output is a cootlessl available pub information Itll hrp is insolvemy This is a

convenient point to start to surVe) the lrtlrature ~hat explllJns (r(ilt ntinning becl-lusfgt of inBpectlOD

oc observation ctJsts

Diamond (1984) explams the eUtpll(C of mlerl1ldlace II e bans) when observing the

productivity of an invtstment is (oslly Whel Ull imcstmJi( Iii timmcec by more than one lender

only the intermediamplY needA to vrtif) tllf IrlJt IJrrdU(iI) [ jw 1rm aD VJ ff(JIIOlltises on

observation costs Gale- and Hellwtg (H1P5) amI VilliatLOII 0984 seK to identify what lEI the

()ptima~ contrad between au elltreiPUelH whi It SItHf hen j I prodl(tlvity of an investment is

not c06tle6sly observable by tile latter (the ullinfutmed apent) iluildillg 011 lownsend (1979) they

show ~lat the oplinm fonlrftft h k ilttudlfd drht t)htracl dtrhr-rizel by IV v(rifinttiol and a

fixed repayment in CasE of fulfillment of tIw origlH( iNIlI of the wntrad and ill case of jefault

venfkation OC(l)rs with all production captured by thr IplHlff_

Williamson (1984) uses the fact thkt an ill~f(alt m lIw mterest rate inrreases the proba~

bUlty of default othN things being equaL this impk tllal HI_ klldes expected profit function IS

concave and hel(c there is an in~rior 11Vinum for the knrkn optimiz3lklll problem Thus a

rise in the interest tate increases tile rCVelll( to the ICldtt blt 3S Jt illCreases also the probability of

default the -expected cost of monitoring the ampX-PO$L prodlldjity of the project rises lowermg the

expeded fe-turn at the point of Sllre bankruptcy the JeJlCIQrs marpiual expected return is negative

as the observation cost is cerLaill and the expected revenue from colcctilg the JOAn is 2ero At the

lenders optimal lending poi))~ there Illay or m[1y no be ritioning (flOre projects than available

tenders) If there is ratiouing tbe interest rate canno~ be useJ to cea~ the market as an increase

in the interest rate does not bHeft JeldeC5 or borrower 1 L loaI~ no OUWf potential lender$

enter the market as It loang expe~ted rettlttl is lWgittlVf it follows that an increase in the supply

of funds thrQugh a loosening in the monetuy stance leaU(r tht number of borrowers without

loans with no substantial impact on the inLerfSt fas This rfSull is tilgt dear~st proposition of

the availability doctrine Williantsons natttbuflO1 s Importilf as he is able to show that a smaJ1

departure from the stancianl moej CIJ (I1 to the bf(ak~j(fyen11 cf i he mtN~tlte mecbanism

furthermore adverse selection or motal iIuJrrJ are not ncnkmiddotd for this to blpeu

Gale and Helhig l11J85) tlfOrlVf th dbt contract ~H the optimal cont-met llndrr asym~

metric information when observing the productiVIty Of il1 frtmll of all investmtnt I~ (06tly this

observation coot is however givfn Tw 1nUtlf UllltSully is assumcd to haYt totll control of the

investment and knows all the possible returns (tht~ dlflributtol1 functi(ln) of the IflvClilment the

borrower adopts (thus the motnl hazard problem nllJ advtrs( rtion art hanished) however

only the borrower observc~ costlessy i h actual HtH] 0f j lw mvsufut As [it( observatIOn cost

is not smail it is not sensible (ie effkJtnt) fot Ihe lendr (Llf 1Il)informd party) to always ob~

serve the true produlttivit_y or the debt-fin3nfed lRvestmcnt The pf~lUCC of privale informatiol)

and tb( borrowers intemive to Keltp mtfgtrest pJYIllltnls as low as poiltsiblf I~ad the borrower to

misrepresent the aetual return of the pwject by dailltng Unt tlw lowest retlHH has occutfd this

effect is similar to that discussed in the shannopptng liernLure Stightz Hl14) Hengt the lender

111 the absence of verification Cftl only 1lgrle to finnnr thes illVfsm1nts whieh even in the worst

states (the lowest possible fe-tum) g)H Jimher SOIW PWiiL

COlsequenty Incurrlllg ohservation costs CIH w bwicml to both parties 15 the return a

borrower ean claim will be higler thall Ihltl lowest r(tlHl1 of 111laquo illVfstment and hence more funds

18

will be available Moreover the (krisioll to ohsPrvf til( rdllrll rfln be intffpfdfd 11lt the Icndcr

declaring the borrower bankrupt that is if the borrowPf cl(llllS a low return (WhlCh is insumcent

to cover the interest rate agreed upon) the lender incurs the cost of verifying the true productivity

(ie checking the books) and keeps the production to hilllSdf Tlwll the borrow~r has no interest to

always claim a low return (eg when the return is more than what IS needed to repay the loan plus

interest the borrower does better by repaying th~ loan and kefpill)l the surplus to himherself)

It follows that bankruptcy occurs only whn the state of tilt world is had and so there is a partial

risk sharing in the standard debt contract

The observation COSt induces a wedgf between t1lf filiI irrfollllition illVesllllfllt optima and

the one when the information on the exmiddot post productivity of all investment is asymmetric The

optimal contract then is the one providlflg an investment level between tht two Credit ratiolJing

is interpreted as the under-investment with respect to the fll information level but this first best

level cannot be achieved because the bankruptcy prol)flhility is positive and because there is a

bankruptcy cost In other words at the full-information optimulll a decrease in the investment

level has secondary eTects on the marginal productivity of the lllvestment but a first-order effect

on the probability of bankruptcy

19

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adverse selection Sonderforschungsbcrel(n 303 DP 1)()Amiddot82 Bonn Ulliv

Jack Itltshleifer and John G lUtey 1l17v TC tl1I31ytirs pf un(rrtainty and infOtmaLim middotmiddotmiddotAn

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2

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22

IDmms lIORKiliG PAPtRS PUllLICDOS

BJRCIAo Paulo e PAlxlo J Coabining Surrogate 91 -Duallty With Boum Improvulg SDequences for Integer PrograOlng (Julho 19813)0

92 - COELHO Jose Dies Optiul Location of School facilities (Julho 1986)

- llOLINERO Jose nigUel Sanerez IndiVidual llotlvations 93 and HaSf lrcvements n

bull (tlaro 19158)

94 - BARcIA Paulo -laprovuiIJ Lagrangean Decoaposltlon 30me Theoretical Result (Agosto 1988)

- sA Jorge VB_$toncellDs e 1 tlodel 0-t the Sources of 95 Be-netits In Strat~y_ (Setvroo 1988)

BURDll K e SlWII1A S ~ On Labor Market Historiesmiddot 96 (Outubro 1968)

I1ACEOO Jorge Braga de e 5EllASTlAo lllnuel middotPubliC 97 - 0

Debt am Iapl1cit Taxesshy the Portuguese experience (NDvellllgtro 1988)

llIRIAN Leonara J e URBANO AlIlparo Asyuetric 98 -Informtion an Endogenous sIgnalling the Case of Unknown Intercept and Pantlo OUtputmiddot (NoveJlbro 1988)

COS1A~ ClalIDia Sofia Taveres e SOUSA Pedo 111quel 99 shyI10ita de Constrwao do Iniice de Renuaeravoes da Bolsa de Valores de Llsboa (N(lvembro~ 1988L

100 shy

lIA5CItIENro lleria Joao do e tOlJRAro OIlvira 101 shyProgramacao CQliI 1ultlb]ectlvDS - Aplica9ao ao Planealaentci Anual de UlIia Empress Aqricola familiar~ (Noveabro 19Ei

102 - CHAIL FernandO Credl t t1ftrkets Wi ttl Asywtetric Information all overv1e1 on the rationiDg illsue (NovJlbro 1988)

Qualquer int orJaa~o sobre 03 YOrklIlg Papers j6 publicados 3era prestada pelo Secretarlampdo de AP010 a03 Docentes podendo os Aesaos ser adquiridos na Secyao de Venda~ da Faculdade de tconoaia UNL na TravesSamp Estvan Plnto eapollae - 1000 LI5BOA

Resumo

Este urveuroy sobre r1tonament d redltn e composto de duas partes

a primfira estuda (1$ problemas que emetgetn numraquo ((onomia com informaoao prlvada

e a segunda concentra-se sabre as cnntJlbuiolen de Jaffee e Russel (1971)) de

Stiglitz If Weiss tlq~l)deale Ii Hellwig l4fFd dt Williamson UQS4) na explic~ lt10 dt raClOnameotn nn mercada de capitaigt (tmt urn feoOmeno de eqllilibria

Sumado








































racionamento




























l


























1 Introduction
















credit literature








Signailtl1g

Adverse seledlOll

C-ostly obseratlon

MoraJ hazard



















OtVfWIH

















2 SjguamH~




































































coverage or loalls



















IIgt e e

Fig 1



















the formltf 4

t 1ontl lmzHrd




of lowerrisk agclts










0



































































I~






unQ~ervabe effort










increaseuros

















0gt [

































II

o

s A

B c

oL-----~------~------------shyL

L

fig 2

















15


































I






































































18

















19

Bibliography






Queens Univ


















Studies 51 393--414








20







ieuve




















630~fi49


S41~5)2





41219-255



2











77228-231






muneo









22





bull (tlaro 19158)








100 shy




Sumado








































racionamento




























l


























1 Introduction
















credit literature








Signailtl1g

Adverse seledlOll

C-ostly obseratlon

MoraJ hazard



















OtVfWIH

















2 SjguamH~




































































coverage or loalls



















IIgt e e

Fig 1



















the formltf 4

t 1ontl lmzHrd




of lowerrisk agclts










0



































































I~






unQ~ervabe effort










increaseuros

















0gt [

































II

o

s A

B c

oL-----~------~------------shyL

L

fig 2

















15


































I






































































18

















19

Bibliography






Queens Univ


















Studies 51 393--414








20







ieuve




















630~fi49


S41~5)2





41219-255



2











77228-231






muneo









22





bull (tlaro 19158)








100 shy










racionamento




























l


























1 Introduction
















credit literature








Signailtl1g

Adverse seledlOll

C-ostly obseratlon

MoraJ hazard



















OtVfWIH

















2 SjguamH~




































































coverage or loalls



















IIgt e e

Fig 1



















the formltf 4

t 1ontl lmzHrd




of lowerrisk agclts










0



































































I~






unQ~ervabe effort










increaseuros

















0gt [

































II

o

s A

B c

oL-----~------~------------shyL

L

fig 2

















15


































I






































































18

















19

Bibliography






Queens Univ


















Studies 51 393--414








20







ieuve




















630~fi49


S41~5)2





41219-255



2











77228-231






muneo









22





bull (tlaro 19158)








100 shy





























1 Introduction
















credit literature








Signailtl1g

Adverse seledlOll

C-ostly obseratlon

MoraJ hazard



















OtVfWIH

















2 SjguamH~




































































coverage or loalls



















IIgt e e

Fig 1



















the formltf 4

t 1ontl lmzHrd




of lowerrisk agclts










0



































































I~






unQ~ervabe effort










increaseuros

















0gt [

































II

o

s A

B c

oL-----~------~------------shyL

L

fig 2

















15


































I






































































18

















19

Bibliography






Queens Univ


















Studies 51 393--414








20







ieuve




















630~fi49


S41~5)2





41219-255



2











77228-231






muneo









22





bull (tlaro 19158)








100 shy


















OtVfWIH

















2 SjguamH~




































































coverage or loalls



















IIgt e e

Fig 1



















the formltf 4

t 1ontl lmzHrd




of lowerrisk agclts










0



































































I~






unQ~ervabe effort










increaseuros

















0gt [

































II

o

s A

B c

oL-----~------~------------shyL

L

fig 2

















15


































I






































































18

















19

Bibliography






Queens Univ


















Studies 51 393--414








20







ieuve




















630~fi49


S41~5)2





41219-255



2











77228-231






muneo









22





bull (tlaro 19158)








100 shy




2 SjguamH~




































































coverage or loalls



















IIgt e e

Fig 1



















the formltf 4

t 1ontl lmzHrd




of lowerrisk agclts










0



































































I~






unQ~ervabe effort










increaseuros

















0gt [

































II

o

s A

B c

oL-----~------~------------shyL

L

fig 2

















15


































I






































































18

















19

Bibliography






Queens Univ


















Studies 51 393--414








20







ieuve




















630~fi49


S41~5)2





41219-255



2











77228-231






muneo









22





bull (tlaro 19158)








100 shy






































coverage or loalls



















IIgt e e

Fig 1



















the formltf 4

t 1ontl lmzHrd




of lowerrisk agclts










0



































































I~






unQ~ervabe effort










increaseuros

















0gt [

































II

o

s A

B c

oL-----~------~------------shyL

L

fig 2

















15


































I






































































18

















19

Bibliography






Queens Univ


















Studies 51 393--414








20







ieuve




















630~fi49


S41~5)2





41219-255



2











77228-231






muneo









22





bull (tlaro 19158)








100 shy
















the formltf 4

t 1ontl lmzHrd




of lowerrisk agclts










0



































































I~






unQ~ervabe effort










increaseuros

















0gt [

































II

o

s A

B c

oL-----~------~------------shyL

L

fig 2

















15


































I






































































18

















19

Bibliography






Queens Univ


















Studies 51 393--414








20







ieuve




















630~fi49


S41~5)2





41219-255



2











77228-231






muneo









22





bull (tlaro 19158)








100 shy






































































I~






unQ~ervabe effort










increaseuros

















0gt [

































II

o

s A

B c

oL-----~------~------------shyL

L

fig 2

















15


































I






































































18

















19

Bibliography






Queens Univ


















Studies 51 393--414








20







ieuve




















630~fi49


S41~5)2





41219-255



2











77228-231






muneo









22





bull (tlaro 19158)








100 shy









unQ~ervabe effort










increaseuros

















0gt [

































II

o

s A

B c

oL-----~------~------------shyL

L

fig 2

















15


































I






































































18

















19

Bibliography






Queens Univ


















Studies 51 393--414








20







ieuve




















630~fi49


S41~5)2





41219-255



2











77228-231






muneo









22





bull (tlaro 19158)








100 shy




































II

o

s A

B c

oL-----~------~------------shyL

L

fig 2

















15


































I






































































18

















19

Bibliography






Queens Univ


















Studies 51 393--414








20







ieuve




















630~fi49


S41~5)2





41219-255



2











77228-231






muneo









22





bull (tlaro 19158)








100 shy




o

s A

B c

oL-----~------~------------shyL

L

fig 2

















15


































I






































































18

















19

Bibliography






Queens Univ


















Studies 51 393--414








20







ieuve




















630~fi49


S41~5)2





41219-255



2











77228-231






muneo









22





bull (tlaro 19158)








100 shy





































I






































































18

















19

Bibliography






Queens Univ


















Studies 51 393--414








20







ieuve




















630~fi49


S41~5)2





41219-255



2











77228-231






muneo









22





bull (tlaro 19158)








100 shy









































































18

















19

Bibliography






Queens Univ


















Studies 51 393--414








20







ieuve




















630~fi49


S41~5)2





41219-255



2











77228-231






muneo









22





bull (tlaro 19158)








100 shy




















19

Bibliography






Queens Univ


















Studies 51 393--414








20







ieuve




















630~fi49


S41~5)2





41219-255



2











77228-231






muneo









22





bull (tlaro 19158)








100 shy




Bibliography






Queens Univ


















Studies 51 393--414








20







ieuve




















630~fi49


S41~5)2





41219-255



2











77228-231






muneo









22





bull (tlaro 19158)








100 shy










ieuve




















630~fi49


S41~5)2





41219-255



2











77228-231






muneo









22





bull (tlaro 19158)








100 shy














77228-231






muneo









22





bull (tlaro 19158)








100 shy








bull (tlaro 19158)








100 shy




credlt markets with asymmetric

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