Credit Markets with Imperfect Information: Risk-Aversion Versus Pessimism


Stiglitz and Weiss (1981) credit rationing is embedded within rank dependent expected utility theory. Our results show that sufficient pessimism or sufficient risk-aversion by borrowers may eliminate adverse selection. Moreover, lender optimism may eliminate credit rationing even when adverse selection exists.

Economics Letters
Jean-Louis Arcand
Jean-Louis Arcand
Professor of Economics

My research interests include development economics, impact evaluation and nutrition and health.