Optimal Farm Credit Pricing under Asymmetric Information

摘要

Lenders cannot determine any farmer's exact ability at the time of loan initiation. The asymmetric information can prevent fully efficient loan pricing by lenders. The resulting losses can be mitigated by nonuniform loan pricing where Loan size is used as a signal to the lender about borrower type. In an expenditure-constrained variable profit function framework, the report explores how imperfect lender information affects farm credit pricing for several market structures: competitive, monopolistic, and cooperative. Imperfect information is unimportant under perfect competition with no risk of default. Under noncompetitive conditions, either credit rationing or overexpansion due to imperfect information: is observed.