Adverse selection and moral hazard in the credit market : using security interests to reduce credit rationing KU Leuven
The credit market isn’t a regular market. In a regular market, supply and demand are brought together through price mediation. In the credit market, on the other hand, demand far exceeds supply: not everyone who applies for a loan ends up obtaining one. One would think that the price, in this case the interest rate, would simply increase in those circumstances, but this turns out not to be the case, and credit remains scarce, or “rationed”. ...