Credit scoring and incentives for loan officers in a principal agend model

  • We analyze incentives for loan officers in a model with hidden action, limited liability and truth-telling constraints under the assumption that the principal has private information from an automatic scoring system. First we show that the truth-telling problem reduces the bank’s expected profit whenever the loan officer cannot only conceal bad types, but can also falsely report bad types. Second, we investigate whether the bank should reveal her private information to the agent. We show that this depends on the percentage of good loans in the population and on the signal’s informativeness. Though we had to define different regions for different parameters, we concluded that it might often be favorable to not reveal the signal. This contradicts current practice.

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Author:Eberhard Feess, Michael Schieble
Parent Title (English):Working paper series / Johann Wolfgang Goethe-Universität Frankfurt, Fachbereich Wirtschaftswissenschaften. Finance & Accounting [; No. 30]
Series (Serial Number):Working paper series / Johann-Wolfgang-Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften : Finance & Accounting (30)
Publisher:Goethe-Universität Frankfurt am Main. Fachbereich Wirtschaftswissenschaften
Place of publication:Frankfurt, M.
Document Type:Working Paper
Year of Completion:1998
Year of first Publication:1998
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2005/10/10
Tag:delegated expertise; informed principal; limited liability; loan officers; loan origination
GND Keyword:Anreiz; Kreditwürdigkeitsprüfung; Finanzmakler; Sachbearbeiter
Issue:August 7, 1998
Page Number:24
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht