Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/189279 
Year of Publication: 
1999
Series/Report no.: 
Queen's Economics Department Working Paper No. 989
Publisher: 
Queen's University, Department of Economics, Kingston (Ontario)
Abstract: 
Bank loans are more available and cheaper for new and small businesses in the US in areas with highly concentrated banks than in areas with highly competitive banks. We explain this fact by analyzing banks' decisions to screen risky projects and their subsequent competition in loan provisions. It is shown that, by increasing a negative informational externality to an informed winner, an increase in the number of banks in the market can reduce banks' screening probability sufficiently, reduce the number of banks that actively compete in loan provisions and increase the expected loan rate. Policy implications are examined.
Subjects: 
Screening
Bidding
Loans
Informational externality
JEL: 
G21
D44
L15
Document Type: 
Working Paper

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