Pessimism, Optimism and Credit Rationing

Abstract : In their celebrated contribution on credit rationing, Stiglitz and Weiss (1981) showed that the expected return to the borrower on a loan is increasing in the risk of the project it funds. In this paper, I show that their results do not necessarily carry over to the case where the agents' preferences can be described by rank-dependent expected utility (RDEU). In particular, a pessimistic probability distortion function for borrowers can yield sufficient concavity in returns for the latter to be decreasing in risk, thus eliminating adverse selection. Whether credit rationing can obtain or not is then shown to depend upon the interaction between borrower pessimism and lender optimism.
Document type :
Preprints, Working Papers, ...
Complete list of metadatas

Cited literature [14 references]  Display  Hide  Download
Contributor : Cerdi Etudes & Documents - Publications <>
Submitted on : Thursday, February 3, 2011 - 5:02:54 PM
Last modification on : Thursday, January 11, 2018 - 6:17:18 AM
Long-term archiving on : Wednesday, May 4, 2011 - 3:41:33 AM


Files produced by the author(s)


  • HAL Id : halshs-00562645, version 1



Jean-Louis Arcand. Pessimism, Optimism and Credit Rationing. 2011. ⟨halshs-00562645⟩



Record views


Files downloads