Lenders' reputation and the soft budget constraint

Michael Alexeev, Sunghwan Kim

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

Suppose at t =0 lenders can choose whether to be "tough" or "soft," and some borrowers learn the lenders' type (reputation). In a decentralized lending market, being tough is optimal for a wider range of parameters than under centralization, because a soft lender who refinances poor projects is hurt by the tough lenders' presence, as the quality of the lenders' project pool is affected by the other lenders' reputation.

Original languageEnglish
Pages (from-to)69-73
Number of pages5
JournalEconomics Letters
Volume84
Issue number1
DOIs
StatePublished - Jul 2004

Keywords

  • Centralization
  • Decentralization
  • Reputation
  • Soft budget constraint

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