Question

Credit rationing in markets with imperfect information

Answer 1

In their 1981 paper, “Credit Rationing in Markets with Imperfect Information”, Joseph E. Stiglitz and Andrew Weiss define a situation similar to the case of The Market for Lemons, an article by George Akerlof, except in the financial markets. In this case, it is the ‘seller’ of credit who pulls out of the market because of adverse selection.