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Sharing credit information under endogenous costs

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  • Eric Van Tassel

Abstract

In this paper we study a model in which asymmetrically informed banks compete with one another to offer loans to entrepreneurs with risky projects. Banks are given an opportunity to share private credit information about their borrowers. The revealed information impacts both the bank’s repayment revenue as well as its costs, in terms of either the rate paid on debt and insurance, or the risk adjusted capital requirement. In this framework, we study how the interaction of repayment revenue and cost shape individual banks’ incentives to share information and in turn, how this explains the overall degree of information sharing in the economy.

Suggested Citation

  • Eric Van Tassel, 2009. "Sharing credit information under endogenous costs," Working Papers 09004, Department of Economics, College of Business, Florida Atlantic University.
    • Handle: RePEc:fal:wpaper:09004
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    File URL: http://home.fau.edu/vantasse/web/SharingCreditInf.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Information sharing; Bank competition; Market discipline;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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