A credit rationing model of the medium risk borrowers with low valued collateral

ABSTRACT

This paper investigates how the risk and the collateral values are jointly affecting the credit rationing. We propose a credit rationing model of continuous default risk and collateral values and show that the medium risk borrowers with low valued (or high transaction cost) collateral are most vulnerable to the credit rationing.

KEYWORDS:

• Credit rationing
• contract menu
• medium risk borrowers
• low valued collateral

JEL CLASSIFICATION:

• G21
• D82

Disclosure statement

No potential conflict of interest was reported by the authors.

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Notes

¹ For the notational convenience, we omit the conditional parameters $k$ and $\bar{\theta }$.

Additional information

Funding

This work was supported by the Sangmyung University Research [Grants of 2019].