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- Title
Optimal Credit Rationing in Not–For–Profit Financial Institutions.
- Authors
Canning, D.; Jefferson, C.W.; Spencer, J.E.
- 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.
- Subjects
FINANCIAL institutions; NONPROFIT organizations
- Publication
International Economic Review, 2003, Vol 44, Issue 1, p243
- ISSN
0020-6598
- Publication type
Article
- DOI
10.1111/1468-2354.t01-1-00069