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Credit from the Monopoly Bank

Author

Listed:
  • Lengwiler, Yvan

    (University of Basel)

  • Rishabh, Kumar

    (University of Basel)

Abstract

We establish that a monopoly bank never uses collateral as a screening device. A pooling equilibrium always exists in which all borrowers pay the same interest rate and put zero collateral. Absence of screening leads to socially inefficient lending in the sense that some socially productive firms are denied credit due to excessively high interest rate.

Suggested Citation

  • Lengwiler, Yvan & Rishabh, Kumar, 2017. "Credit from the Monopoly Bank," Working papers 2017/15, Faculty of Business and Economics - University of Basel.
    • Handle: RePEc:bsl:wpaper:2017/15
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    File URL: https://edoc.unibas.ch/61303/1/20180306095122_5a9e568a58ddb.pdf
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    References listed on IDEAS

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    Cited by:

    1. Biswas, Sonny, 2023. "Collateral and bank screening as complements: A spillover effect," Journal of Economic Theory, Elsevier, vol. 212(C).

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    More about this item

    Keywords

    Monopoly bank; credit; contracts; screening; pooling; collateral;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • D00 - Microeconomics - - General - - - General

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