Optimal Credit Rationing in Not-For-Profit Financial Institutions

David Canning, Clifford Jefferson, John Spencer

Research output: Contribution to journalArticlepeer-review

20 Citations (Scopus)

Abstract

We examine the dynamic optimization problem for not-for-profit financial institutions (NFPs) that maximize consumer surplus, not profits. We characterize the optimal dynamic policy and find that it involves credit rationing. Interest rates set by mature NFPs will typically be more favorable to customers than market rates, as any surplus is distributed in the form of interest rate subsidies, with credit rationing being required to prevent these subsidies from distorting loan volumes from their optimal levels. Rationing overcomes a fundamental problem in NFPs; it allows them to distribute the surplus without distorting the volume of activity from the efficient level.
Original languageEnglish
Pages (from-to)243-261
Number of pages19
JournalInternational Economic Review
Volume44(1)
Issue number1
DOIs
Publication statusPublished - Feb 2003

ASJC Scopus subject areas

  • Economics and Econometrics

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