Abstract

Stiglitz and Weiss (1981) show that firms considering risky projects have higher reservation interest rates and hence it is optimal for a bank to reduce loan supply. In this note we show that when the risk involved in an investment will be resolved in the future, investors with riskier projects have a greater return from waiting. More risky projects have lower reservation interest rates and hence there is no motive for banks to ration credit demand.

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Additional Information

ISSN
1538-4616
Print ISSN
0022-2879
Pages
pp. 221-225
Launched on MUSE
2002-02-01
Open Access
No
Archive Status
Archived 2007
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