The near impossibility of credit rationing
de Meza, D.
& Webb, D. C.
(2003).
The near impossibility of credit rationing.
(Financial Markets Group Discussion Papers 459).
Financial Markets Group, The London School of Economics and Political Science.
& Webb, D. C.
(2003).
The near impossibility of credit rationing.
(Financial Markets Group Discussion Papers 459).
Financial Markets Group, The London School of Economics and Political Science.
Equilibrium credit rationing in the sense of Stiglitz and Weiss (1981) implies the marginal cost of funds to the borrower is infinite. So borrowers have an overwhelming incentive to cut their loan by a dollar and thereby avoiding being rationed. Ways of doing this include scaling down the project, cutting consumption or infinitesimally delaying the project to accumulate more saving. All of these routes are normally feasible in which case credit rationing is impossible.