Asymmetric information and imperfect competition in lending markets

G.S. Crawford, Nicola Pavanini, F. Schivardi

Research output: Contribution to journalArticleScientificpeer-review

Abstract

We study the effects of asymmetric information and imperfect competition in the market for small business lines of credit. We estimate a structural model of credit demand, loan use, pricing, and firm default using matched firm-bank data from Italy. We find evidence of adverse selection in the form of a positive correlation between the unobserved determinants of demand for credit and default. Our counterfactual experiments show that while increases in adverse selection increase prices and defaults on average, reducing credit supply, banks' market power can mitigate these negative effects.
Original languageEnglish
Pages (from-to)1659-1701
JournalAmerican Economic Review
Volume108
Issue number7
DOIs
Publication statusPublished - Jul 2018

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Asymmetric information
Lending
Imperfect competition
Credit
Adverse selection
Loans
Market power
Small business
Italy
Structural model
Experiment
Credit supply
Pricing

Cite this

Crawford, G.S. ; Pavanini, Nicola ; Schivardi, F. / Asymmetric information and imperfect competition in lending markets. In: American Economic Review. 2018 ; Vol. 108, No. 7. pp. 1659-1701.
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Asymmetric information and imperfect competition in lending markets. / Crawford, G.S.; Pavanini, Nicola; Schivardi, F.

In: American Economic Review, Vol. 108, No. 7, 07.2018, p. 1659-1701.

Research output: Contribution to journalArticleScientificpeer-review

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