Screening and monitoring are costly activities. Why is it a bad idea to impose these costs on borrowers?
What will be an ideal response?
Imposing extra costs on borrowers exacerbates the adverse selection problem, because "good" borrowers are most likely to feel that the costs are excessive and punitive, while "bad" borrowers — whose intention to repay is questionable — are relatively unaffected. Monitoring that is inconvenient and/or intrusive penalizes good borrowers and undermines their cooperation, while bad borrowers may continue to thwart the monitoring system.
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Increases in consumer wealth will cause an increase in autonomous consumption
Indicate whether the statement is true or false
The winner of a second-price sealed-bid auction pays an amount equal to ________
A) half of his bid B) the lowest bid C) the second-highest bid D) his valuation of the good
Suppose the government of Erbia imposes an income tax of 30 percent. If the base consumption of a consumer is $1,000 and the marginal propensity to consume is 0.8, then the total consumption of the consumer at an income of $5,000 will be _____
a. $2,600 b. $7,900 c. $5,900 d. $3,800
What name is given to the plant and equipment used by firms in production?
A. Production function B. Physical capital C. Productivity D. Aggregate production function