Information sharing and lending market competition with switching costs and poaching

Gehrig, Thomas; Stenbacka, Rune

doi:10.1016/j.euroecorev.2006.01.009

Cited by 129 publications

(84 citation statements)

References 30 publications

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“…The switching costs may, for example, reflect the costs of another application procedure at a competitor bank, or the financial costs of transferring funds from the previous bank. Moreover, as Gehrig and Stenbacka [24] argue, switching costs can vary largely across customers (see Shy [44]; Kim et al [34], Stango [45]). The switching costs are private information of the borrowers and are revealed to the borrower at the beginning of period 2.…”

Section: The Modelmentioning

confidence: 99%

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Does information sharing reduce the role of collateral as a screening device?

Karapetyan¹,

Stacescu²

2014

Journal of Banking & Finance

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Information sharing and collateral are both devices that help banks reduce the cost of adverse selection.We examine whether they are likely to be used as substitutes (information sharing reduces the need for collateral) or complements. We show that information sharing via a credit bureaus and registers may increase, rather than decrease, the role of collateral: it can be required in loans to high-risk borrowers in cases when it is not in the absence of information sharing. Higher adverse selection makes the use of collateral more likely both with and without information sharing. Our results are in line with recent empirical evidence.

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Section: The Modelmentioning

confidence: 99%

“…Following Gehrig and Stenbacka [24], we model this as an idiosyncratic switching cost that is distributed uniformly on the interval [0, S]. The switching costs may, for example, reflect the costs of another application procedure at a competitor bank, or the financial costs of transferring funds from the previous bank.…”

Section: The Modelmentioning

confidence: 99%

Does information sharing reduce the role of collateral as a screening device?

Karapetyan¹,

Stacescu²

2014

Journal of Banking & Finance

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“…regardless of the value of λ [Proposition 4.1 in Gehrig and Stenbacka (2007)]. These rates imply that a bank's second-period poaching profits will be (1 − μ i )(λb/9).…”

Section: Equilibrium Under Information Sharingmentioning

confidence: 99%

Information sharing and lending market competition under strong adverse selection

Fernández‐Ruiz

García‐Cestona

2012

SERIEs

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In a relatively recent paper, Gehrig and Stenbacka (Eur Econ Rev 51, 77-99, 2007) show that information sharing increases banks' profits to the detriment of creditworthy entrepreneurs in a model of a banking duopoly with switching costs and poaching. They restrict their analysis to the case in which adverse selection is not too strong. We analyze the complementary case and show that, when the economy suffers from strong adverse selection, information sharing still increases banks' profits, but it may or may not hurt talented entrepreneurs.

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“…At the same time, information sharing may be used to reduce competition between banks (Gehrig and Stenbacka, 2007). Also, information sharing is more likely if borrower mobility is higher (Pagaon and Jappelli, 1993) and if asymmetric information problems are more important (Brown and Zehnder, 2010).…”

mentioning

confidence: 99%

“…However, some negative points arise from information sharing. Gehrig and Stenbacka (2007), show that information sharing reduces the returns from establishing banking relationships. It, therefore, weakens banks competition.…”

mentioning

confidence: 99%

A multiagent game theoretical approach to adverse selection in corporate financing

Elfakir¹,

Tkiouat²

2016

Investment Management and Financial Innovations

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In this research the authors tried to solve the adverse selection problem in the Mudaraba contracts with respect to the projects privately known prospects. The authors introduced a model of two contracts characterized by an adverse selection index for each contract. They have managed to find that a case of market breakdown can occur because the efficient agent might mimic the inefficient agent. The authors, then, managed to develop a ‘Mimicking Likelihood Index’ whereby one can infer whether a type of an agent has a tendency to mimic the other type. In the same context, the authors developed a “Relative Adverse Selection” index to measure which type of agents has more tendencies to select a specific type of contracts. These findings should help Islamic financial institutions in their agent selection process and hedge its risky Mudaraba contracts

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Information sharing and lending market competition with switching costs and poaching

Cited by 129 publications

References 30 publications

Does information sharing reduce the role of collateral as a screening device?

Does information sharing reduce the role of collateral as a screening device?

Information sharing and lending market competition under strong adverse selection

A multiagent game theoretical approach to adverse selection in corporate financing

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