Does Adverse Selection Justify Government Intervention in Loan Markets?
35 Pages Posted: 14 Nov 2012
Date Written: 1994
Abstract
Some economists argue that models of adverse selection in loan markets can display market failures that rationalize a welfare-enhancing role for government intervention. Such models impose restrictive assumptions on the way agents interact. The same adverse selection models with a less restrictive definition of equilibrium display endogenous financial intermediaries and predict no welfare-enhancing role for the government.
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