Publication detail

Which Government Interventions Are Good in Alleviating Credit Market Failures?

Author(s): prof. Ing. Karel Janda M.A., Dr., Ph.D.,
Type: IES Working Papers
Year: 2008
Number: 12
ISSN / ISBN:
Published in: IES Working Papers 12/2008
Publishing place: Prague
Keywords: information asymmetry, credit, guarantees, subsidies
JEL codes: D82, G18, H25
Suggested Citation: Janda, K. (2008). “ Which Government Interventions Are Good in Alleviating Credit Market Failures? ” IES Working Paper 12/2008. IES FSV. Charles University.
Grants: IES Research Framework Institutional task (2005-2011) Integration of the Czech economy into European union and its development
Abstract: Credit contracting between a lender with a market power and a small start-up entrepreneur may lead to a rejection of projects whose expected benefits are higher than their total costs when an adverse selection is present. This inefficiency may be eliminated by a government support in the form of credit guarantees or subsidies. The principal-agent model of this paper compares different forms of government support and concludes that a guarantee defined as a proportion of a gross interest rate is not a sufficiently robust policy instrument. Lump-sum guarantees and interest rate subsidies are evaluated as better instruments because they have a nonambiguous positive effect on a social efficiency since they enable funding of socially efficient projects which would not be financed otherwise.
Downloadable: WP 2008_12_Janda

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