Lending standards, productivity, and credit crunches

We propose a macroeconomic model in which adverse selection in investment amplifies macroeconomic fluctuations, in line with the prominent role played by the credit crunch during the financial crisis. Endogenous lending standards emerge due to an informational asymmetry between borrowers and lenders about the riskiness of borrowers. By using loan approval probability as a screening device, banks ration credit following increases in lending risk, generating large endogenous movements in TFP, explaining why productivity often falls during crises. Furthermore, the mechanism implies that financial instability is heightened when interest rates are low.

Intrusive tech-enabled surveillance and ‘National Security’ secrecy: mounting concerns of mass snooping amid informational asymmetry

The onset of technological innovations such as Big Data and Analytics is changing the ways in which law enforcement agencies police and investigate crimes in India. Pervasive technologies like smartphones, closed-circuit cameras, etc, coupled with such innovations have augmented abilities of law enforcement to identify, monitor and predict suspicious individuals and activities. However, the expansive adoption of intrusive technologies for law enforcement challenge the statutory and the constitutional limits on mass surveillance. Also, the government has not been forthcoming in disclosing details about the extent and the ambition of such surveillance technologies. The secrecy has resulted in an informational asymmetry between the people and the government which raises profound concerns of mistrust, transparency and public-accountability. This article examines the feasibility of the ‘national security’ argument that law enforcement agencies normatively use to justify such secrecy of their surveillance powers. They argue that such disclosures may negatively affect their investigational strategies and render them susceptible to circumvention, such that it may be a risk to ‘national security’. The article analyses such ‘national security’ secrecy claims that currently exist without any proper surveillance law and external oversight. The article seeks to recommend meaningful approaches to limit the over-broad ‘national security’ secrecy claims and initiate an informed public conversation on expansive tech-enabled surveillance practices of the Indian government.

Delegation of implementation in project aid

In this paper we explore the factors that determine delegation of implementation in project aid. In particular, focusing on the importance of informational asymmetry between levels of government, we empirically assess whether this choice is influenced by the relative importance of the local information at the recipient country level. Moreover, we test whether this choice can in turn influence project performance. Using information on more than 5800 World Bank projects for the period 1995-2014, and controlling for characteristics at both country and project level, we find that transparency does influence the probability that a project is implemented locally rather than nationally. More specifically, a one standard deviation decline in transparency increases the probability of a locally implemented project by three percentage points. We also find that a local implementing agency may increase the probability of a successful project only up to a certain level of a country’s transparency.

O risco de informação assimétrica sobre a liquidez dos contratos futuros de commodities agrícolas

<p>The aim of this study is to analyze the effect of the risk of informational asymmetry on the liquidity of agricultural commodity futures contracts traded on B3. To this end, we examine intraday negotiations of the commodities Live Cattle, Arabica Coffee, Corn, and Soybeans from December 1, 2018 to November 30, 2019. We carry out the analysis using a panel regression model. We use spread as a proxy for liquidity, VPIN as a proxy for the probability of informational asymmetry and, as control variables, the number of trades, volume traded, and volatility. Our results show that the regressors explain 43.08% of the spread variation. In addition, there is a positive relationship between the risk of trading with informational asymmetry and market liquidity, in contrast with the extant results in the literature.</p>

Do Loan Guarantees Alleviate Credit Rationing and Improve Economic Welfare?

By designing credit contracts with inversely related interest rates and collateral, banks can overcome the problems of adverse selection and moral hazard when there is an informational asymmetry in competitive credit markets. One salient result points out that, if borrowers’ insufficient endowments of wealth cause a binding collateral constraint, a credit rationing equilibrium arises because of collateral’s inability to achieve perfect sorting. The purpose of this paper is to examine the consequences of government loan guarantees on equilibrium credit contracts and economic welfare. More specifically, the effects of loan guarantees on interest rates, collateral, and credit rationing were studied. Our results suggest that government loan guarantees should target high-risk entrepreneurs. Loan guarantees targeting high-risk entrepreneurs reduce a pledge of collateral in credit contracts, drop social cost, and increase economic welfare. Under the circumstances that borrowers’ insufficient wealth causes a binding collateral constraint, loan guarantees targeting high-risk entrepreneurs alleviate the problem of credit rationing and improve economic welfare.