Conference Agenda

Session Overview
Session
Track W6-1: Loan Markets: Market Failures and Government Intervention
Time:
Wednesday, 22/May/2024:
8:30am - 9:15am

Session Chair: Olivia Kim, Harvard Business School
Discussant: Hanbin Yang, Harvard Business School
Location: Room 548


Presentations

Loan Guarantees and Incentives for Information Acquisition

David Stillerman

American University

To address credit constraints in small-business lending markets, policymakers frequently use loan guarantees, which insure lenders against default. Guarantees affect loan prices by altering the effective marginal cost of lending but may create a moral hazard problem, weakening lenders’ information-acquisition incentives. I quantify these channels using data from the SBA 7(a) Loan Program. Guarantees benefit borrowers, on average, but redistribute surplus from low- to high-risk borrowers. Fixing government spending, an alternative policy with a 50% guarantee and a subsidy leads to an increase in borrower surplus and 0.1 percentage point (1.1%) decline in the program’s default rate.


Stillerman-Loan Guarantees and Incentives for Information Acquisition-1190.pdf