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Credit Rationing and Payment Incentives

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  • Franklin Allen

Abstract

A model of borrowing for production is presented where default leads to exclusion from the capital market. This means contracts are enforceable, provided the current payment is less than or equal to the value of future access to the capital market. The main result of the paper is to show that if this constraint binds then credit is rationed.

Suggested Citation

  • Franklin Allen, 1983. "Credit Rationing and Payment Incentives," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 50(4), pages 639-646.
    • Handle: RePEc:oup:restud:v:50:y:1983:i:4:p:639-646.
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    Cited by:

    1. Niinimäki, J.-P., 2024. "The incentive effects of the overlapping project structure in credit markets," Journal of Economics and Business, Elsevier, vol. 128(C).
    2. Oliver Hart & John Moore, 1998. "Default and Renegotiation: A Dynamic Model of Debt," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(1), pages 1-41.
    3. Gai, Prasanna & Hayes, Simon & Shin, Hyun Song, 2004. "Crisis costs and debtor discipline: the efficacy of public policy in sovereign debt crises," Journal of International Economics, Elsevier, vol. 62(2), pages 245-262, March.
    4. Peter Rowland & José Luis Torres Trespalacios, 2004. "Determinants Of Spread And Creditworthiness For Emerging Market Sovereign Debt: A Panel Data Study," Borradores de Economia 2337, Banco de la Republica.
    5. ismail, abdul & smith, peter, 1993. "Monetary Policy and Commercial Banks: An Overview," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 27, pages 29-55.
    6. Xinhua Gu & Yang Zhang & Xiaolin Qian & Haizhen Guo, 2016. "The suspension of borrowing: an implicit penalty for loan default under imperfect information," Applied Economics, Taylor & Francis Journals, vol. 48(60), pages 5882-5896, December.
    7. Onur Ozgur, 2005. "A Model of Dynamic Liquidity Contracts," Microeconomics 0502004, University Library of Munich, Germany.
    8. Jonathan Eaton & Mark Gersovitz & Joseph E. Stiglitz, 1991. "The Pure Theory of Country Risk," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 391-435, National Bureau of Economic Research, Inc.
    9. Gerhard Clemenz & Mona Ritthaler, 1992. "Credit markets with asymmetric information : a survey," Finnish Economic Papers, Finnish Economic Association, vol. 5(1), pages 12-26, Spring.
    10. Jain, Tarun & Sood, Ashima, 2017. "How does relationship-based governance accommodate new entrants? Evidence from the cycle-rickshaw rental market," Journal of Institutional Economics, Cambridge University Press, vol. 13(3), pages 673-697, September.
    11. Raccanello, Kristiano, 2016. "Do Microenterprises’ size and status matter to access informal finance?./ ¿El tamaño y el registro de las microempresas permite el acceso a los mercados financieros informales?," Panorama Económico, Escuela Superior de Economía, Instituto Politécnico Nacional, vol. 12(23), pages 123-152, Segundo s.
    12. Genicot, Garance, 2002. "Bonded labor and serfdom: a paradox of voluntary choice," Journal of Development Economics, Elsevier, vol. 67(1), pages 101-127, February.
    13. Miglo, Anton, 2004. "Pecking order theory for government finance," MPRA Paper 89017, University Library of Munich, Germany, revised 2018.
    14. Xi Chen & Yu Chen & Xuhu Wan, 2018. "Delegated Project Search," Graz Economics Papers 2018-11, University of Graz, Department of Economics.
    15. Lächler, Ulrich, 1985. "Debt versus equity in development finance," Kiel Working Papers 248, Kiel Institute for the World Economy (IfW Kiel).
    16. Braverman, Avishay & Guasch, J. Luis, 1989. "Rural credit in developing countries," Policy Research Working Paper Series 219, The World Bank.
    17. Tong, Jian, 2005. "Credit rationing and firms in oligopoly," Discussion Paper Series In Economics And Econometrics 505, Economics Division, School of Social Sciences, University of Southampton.
    18. Liu, Wei & Spanjers, Willem, 2005. "Social capital and credit constraints in informal finance," Economics Discussion Papers 2005-5, School of Economics, Kingston University London.
    19. Tong, Jian, 2005. "Credit rationing and firms in oligopoly," Discussion Paper Series In Economics And Econometrics 0505, Economics Division, School of Social Sciences, University of Southampton.
    20. Nunnenkamp, Peter, 1988. "Kapitalabflüsse aus der Dritten Welt und Schuldenerlaß: Zu den Problemen des privaten Kapitaltransfers zwischen Industrie- und Entwicklungsländern," Kiel Discussion Papers 139, Kiel Institute for the World Economy (IfW Kiel).

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