The option to wait to invest and equilibrium credit rationing

R Lensink; E Sterken

doi:10.1353/mcb.2002.0030

The option to wait to invest and equilibrium credit rationing

R Lensink^*, E Sterken

^*Corresponding author for this work

Faculty of Economics and Business

Research output: Contribution to journal › Article › Academic › peer-review

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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.

Original language	English
Pages (from-to)	221-225
Number of pages	5
Journal	Journal of money credit and banking
Volume	34
Issue number	1
DOIs	https://doi.org/10.1353/mcb.2002.0030
Publication status	Published - Feb-2002

Keywords

UNCERTAINTY

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10.1353/mcb.2002.0030

The Option to Wait to InvestFinal publisher's version, 287 KBLicence: Taverne

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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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The option to wait to invest and equilibrium credit rationing

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