Rationing is a pervasive feature of credit markets. It has been suggested that credit rationing represents a suboptimal allocation of resources. In a general equilibrium model of credit rationing with hidden information and costly monitoring we show that if credit is rationed it is suboptimal...

This paper outlines the development and exposits some of the central ideas and implications of asymmetric information in the credit market. Copyright 1993 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

Four cases of a selection problem are examined where knowledge of the distributions from which project returns are drawn is private to entrepreneurs with projects. Diagrammatic analysis is used to determine the contract form offered by funding banks which choose between debt, equity or a more...

The welfare implications of time inconsistency are examined and related to the theory of second best using a simple two period model. The economy is populated by identical individuals, whose welfare is the concern of a government confronting public good and externality problems. Necessary, but...

This paper explores the implications of entrepreneurs holding biased perceptions about the probability of project success and/or the size of payoff, if successful. When entrepreneurs are optimistic only about the probability of success, credit is not rationed. Credit rationing can occur where...