Dynamic Equilibrium in a Competitive Credit Market: Intertemporal Contracting as Insurance against Rationing

摘要

Credit rationing has recently been explained as an equilibrium phenomenon under asymmetric information. It is, however, a very costly resolution of informational problems. Thus, it is natural to expect credit mechanisms to arise that lessen the incidence of rationing. Using a dynamic model of credit market equilibrium under asymmetric information, the paper explains how intertemporal credit contracting can eliminate the rationing which arises endogenously with spot contracting. This may explain why billions of dollars in credit commitments are annually issued by commercial banks: these commitments provide borrowers with guaranteed future funds availability and hence insure them against rationing. It is also indicated how a perturbation of the model leads to the persistence of credit rationing despite long-term credit commitments, even though its incidence is reduced by such commitments. The analysis also produces additional predictions.