Competitive Consumer Loan Market Model: Interest-Collateral Equilibrium
6 Pages Posted: 27 Jun 2016
Date Written: June 27, 2016
Abstract
In this article we develop a fairly simple mathematical model of a competitive consumer loan market. Given the market deposit rate and the structure of the public’s time preference it predicts the equilibrium interest rate on consumer loans and the equilibrium degree of collateral coverage (the assets pledged – loans given ratio). Any borrower, according to his or her time preference, rate offered and collateral pledged decides whether he or she repays the loan or not and the banks try to deal with the arising information asymmetry. At the end of the paper we suggest the possible ways to further generalise the model.
Keywords: microeconomics, mathematical economics, banking, collateral
JEL Classification: C69, D21, G21
Suggested Citation: Suggested Citation