Document Type
Other
Publication Date
2012
Abstract
The seminal credit market model of Stiglitz and Weiss (1981) proposes that asymmetric information between borrowers and lenders creates a moral hazard in which borrowers to have an incentive to invest in risky projects, creating the basis for a rationing equilibrium in credit markets. Other recent behavioral work, argues that a different type of behavior is more central to credit market risk: the temptation for borrowers to use borrowed capital to meet short-term consumption needs rather than for productive investment (Banerjee and Mullainathan, 2010). In this note, we present a simple model that is able to explain credit rationing where present-bias, rather than an incentive to undertake risky projects, characterizes the root source of risk under asymmetric information in credit markets.
Recommended Citation
Cassar, Alessandra and Wydick, Bruce, "Credit Rationing with Behavioral Foundations: Revisiting Stiglitz and Weiss" (2012). Economics Faculty Publications. 27.
https://repository.usfca.edu/econ/27
Comments
Working Paper.