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Economic Review

May/Jun, 1992

Credit Rationing by Loan Size in Commercial Loan Markets

Stacey L. Schreft and Anne P. Villamil

The authors present a theoretical model in which a profit-maximizing lender may ration credit to businesses by restricting loan size. Such credit rationing occurs despite the absence of differences across borrowers in default risk or loan administration costs. Moreover, the model predicts an interest rate-loan size pattern that matches that observed in U.S. commercial loan markets.

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