IMPERFECT INFORMATION, UNCERTAINTY, AND CREDIT RATIONING: COMMENT AND EXTENSION.

The Jaffee and Russell [1976] model of credit rationing under imperfect information and uncertainty suggests that a single-contract equilibrium will tend to occur at a point of rationing and that a multiple-contract equilibrium will likely be unstable. This paper respecifies and extends the Jaffee-Russell model to incorporate default expectations on the demand side and to consider the price of credit more appropriately to be the net (after expected default) yield rather than the contract rate. Results show rationing is not necessary in the single-contract equilibrium case, nor is an unstable equilibrium possible in the multiple-contract case. [ABSTRACT FROM AUTHOR]