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Saving Eliminates Credit Rationing

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  • David C Webb
  • David De Meza

Abstract

Equilibrium credit rationing, in the sense of Stiglitz and Weiss (1981), implies the borrower faces an infinite marginal cost of funds. Infinitessimily delaying the project to accumulate more wealth is therefore advantageous to the borrower. As a result, the well-known conditions for credit rationing cannot be satisfied.

Suggested Citation

  • David C Webb & David De Meza, 2001. "Saving Eliminates Credit Rationing," FMG Discussion Papers dp391, Financial Markets Group.
    • Handle: RePEc:fmg:fmgdps:dp391
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    References listed on IDEAS

    as
    1. Simon Parker, 2000. "Saving to Overcome Borrowing Constraints: Implications for Small Business Entry and Exit," Small Business Economics, Springer, vol. 15(3), pages 223-232, November.
    2. Douglas Holtz-Eakin & David Joulfaian & Harvey S. Rosen, 1994. "Entrepreneurial Decisions and Liquidity Constraints," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 334-347, Summer.
    3. David de Meza & David C. Webb, 1987. "Too Much Investment: A Problem of Asymmetric Information," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(2), pages 281-292.
    4. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
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    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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