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A note on loan market equilibrium when some borrowers are optimistic

Author

Listed:
  • Jijun Niu

    (Simon Fraser University)

Abstract

We study a loan market equilibrium in which some borrowers are optimistic and banks face imperfect competition. We show that the presence of optimistic borrowers reduces the interest rate paid by safe borrowers and increases the interest rate paid by risky borrowers. But it has no net impact on the banks' profits.

Suggested Citation

  • Jijun Niu, 2010. "A note on loan market equilibrium when some borrowers are optimistic," Economics Bulletin, AccessEcon, vol. 30(2), pages 1210-1216.
    • Handle: RePEc:ebl:ecbull:eb-09-00757
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Banking; optimistic borrowers; imperfect competition;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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