Credit Constraints as a Consequence of Hidden Actions in Lending
The hidden-action problem in lending leads to inefficient credit constraints. Because lenders increase interest rates to compensate for the higher risk of default from borrowers' suboptimal care, they will only finance investment projects that are the least risky and have the highest returns. This excludes many other potentially profitable ventures from receiving funding.
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Ch.10 Market successes and failures: The societal effects of private decisions - The Economy 2.0 Microeconomics @ CORE Econ
The Economy 2.0 Microeconomics @ CORE Econ
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