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Dysfunctional Finance: Positive Shocks and Negative Outcomes
Veröffentlicht/Copyright:
1. Januar 2010
In financial markets with asymmetric information about mean returns, borrowers with different default risks may pay the same rate of interest. If they do, the marginal borrower will have a high-risk, negative-value project. Under some conditions, technological change that increases each entrepreneur’s output will attract a new set of negative-value projects. This adverse selection process will erode the ability rents of the inframarginal borrowers. I present an example in which it destroys the market. The results imply that a boom in a sector can lead to a crisis if institutional change to solve the screening problem does not occur.
Published Online: 2010-1-1
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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Schlagwörter für diesen Artikel
adverse selection;
financial fragility;
informational externality;
tragedy of the commons
Artikel in diesem Heft
- Research Foundation
- Democracy, Autocracy and Bureaucracy
- Incomes in South Africa after the Fall of Apartheid
- Poverty and Disequalization
- Dysfunctional Finance: Positive Shocks and Negative Outcomes
- Policy Analysis
- Impact of Political Reservations in West Bengal Local Governments on Anti-Poverty Targeting
- Rethinking Global Economic and Social Governance
- Public Finance and Economic Development: Reflections based on Experience in China
- International Rules for Trade in Natural Resources
- Macro Crises and Targeting Transfers to the Poor
- Symposium
- Symposium: The Return of Counter-cyclical Policy - Editorial Preface
- Asia: Counter-Cyclical Policies: Indian Experience and Some General Observations
- Asia: China's Policy Responses to the Global Financial Crisis
- Latin America: Counter-Cyclical Policy in Brazil: 2008-09
- Latin America: The Structural Fiscal Balance Policy in Chile: A Move Toward Counter-Cyclical Macroeconomics
- Latin America: Comments on Financial Regulation and International Capital Flows in Latin America
- Africa: Africa's Counter-Cyclical Policy Responses to the Crisis
- Europe: How Deep Is a Crisis? Policy Responses and Structural Factors Behind Diverging Performances
- Europe: Counter-Cyclical Policies in Light of the Global Financial Crisis: The Case of Turkey
