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Contribution Details

Type Working Paper
Scope Discipline-based scholarship
Title Asymmetric information and imperfect competition in lending markets
Organization Unit
  • Gregory S. Crawford
  • Nicola Pavanini
  • Fabiano Schiwardi
  • English
Institution Centre for Economic Policy Research
Series Name CEPR Discussion Papers
Number 10473
ISSN 0265-8003
Number of Pages 62
Date 2017
Abstract Text 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.
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Keywords assymetric information, credit markets, imperfect competition, lending markets