| This dissertation has developed meaningful theories of formal agricultural credit markets, to further the understanding of the main economic aspects, credit rationing and loan default, of these markets and to provide the much needed theoretical basis for empirical investigations.To accomplish the first objective, and attempt was made (1) to develop a basic theory of equilibrium credit rationing and loan default in an unregulated market with asymmetric information problems and a non-neutral lender using differing types of risk-reducing technologies, and (2) to provide a theoretical analysis of the impact of regulations on credit rationing and loan default in these markets.The equilibrium analysis of the basic unregulated model led to the following conclusions: (1) Type I, or loan-size rationing arises as a result of the existence of asymmetric information problems. (2) Type II, or loan quantity rationing arises when the lender, after screening and classifying loan applicants, is unable to offer to some class(es) of borrowers profitable loan contracts. (3) In equilibrium, the number of bad-debt loans is associated with the effectiveness of the lender's screening technology, the initial risk of loan default, and the effects of interest rate, loan size, and collateral requirements on this initial risk (adverse selection effects).From the theoretical analysis of the regulated model the following conclusions were drawn: (1) If the adverse selection effect of interest rates is unimportant, deregulation of the loan rate of interest will persuade the lender to increase the optimal loan size and the optimal applicants' acceptance rate. Otherwise, the impact of deregulations of loan rates of interest on type I and II rationing will be ambiguous. (2) Deregulation of interest rate may reduce type II rationing even in the case of strong adverse selection problems, if the lender is not constrained in his credit evaluation operations. (3) Deregulation of the lender's credit evaluation and loan-recovery activities, and the capacity to repossess collateral will unambiguously decrease type I and type II rationing, and the number of bad-debt loans. |
