"Irresponsible lending" with a better informed lender

  • We present a simple model of personal finance in which an incumbent lender has an information advantage vis-a-vis both potential competitors and households. In order to extract more consumer surplus, a lender with sufficient market power may engage in "irresponsible"lending, approving credit even if this is knowingly against a household’s best interest. Unless rival lenders are equally well informed, competition may reduce welfare. This holds, in particular, if less informed rivals can free ride on the incumbent’s superior screening ability.

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Author:Roman InderstORCiDGND
Parent Title (German):Working paper series / Institute for Monetary and Financial Stability ; 32
Series (Serial Number):Working paper series / Institute for Monetary and Financial Stability (32)
Document Type:Working Paper
Year of Completion:2009
Year of first Publication:2009
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2009/12/08
GND Keyword:Haushalt; Kreditgeber; Information; Vorteil; Konkurrent
Published in: Economic Journal, 2008, vol. 118, issue 532, pp. 1499-1519
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Institute for Monetary and Financial Stability (IMFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht