Collateral versus project screening : a model of lazy banks

@inproceedings{Manove2002CollateralVP,
  title={Collateral versus project screening : a model of lazy banks},
  author={Michael Manove and A. Jorge Padilla and Marco Pagano},
  year={2002}
}
Many economists argue that the primary economic function of banks is to provide cheap credit, and to facilitate this function, they advocate the strict protection of creditor rights. But banks can serve another important economic function: by screening projects they can reduce the number of project failures and thus mitigate their private and social costs. In this article we show that because of market imperfections in the banking industry, strong creditor protection may lead to market… CONTINUE READING

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