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 language | English |
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Pages (from-to) | 69-73 |
Number of pages | 5 |
Journal | Economics Letters |
Volume | 84 |
Issue number | 1 |
DOIs | |
State | Published - Jul 2004 |
Keywords
- Centralization
- Decentralization
- Reputation
- Soft budget constraint