Abstract
This paper deals with credit rationing in bank loan markets. The bank is assumed to act as a Bayesian statistician to improve its subjective distribution of the default rate and its ability to identify risky loan applicants. Credit rationing arises as a result of profit maximization of the bank, which takes into account the expected amount of overall default as well as loans demanded by identified defaulters who are denied credit. The comparative statics depend, among other things, on the relative size of prior and sample means of the default rate, and on the form of the bank's information cost function.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
