Credit contracting between a lender with a market power and a small start-up entrepreneur may lead to a rejection of projects whose expected benefits are higher than their total costs when an adverse selection is present. This inefficiency may be eliminated by a government support in the form of...

The efficiency of federal lending guarantees depends on whether guarantees increase lending supply, or simply act as a subsidy to lenders. We use notches in the guarantee rate schedule for loans backed by the Small Business Administration to estimate the elasticity of bank lending volume to loan...

We study third-party loan guarantees in a model in which lenders can screen, learn loan quality over time and can sell loans before maturity when in need of liquidity. Loan guarantees improve market liquidity and reduce lending standards, with a positive overall welfare effect. Guarantees...