Prague Economic Papers 2003, 12(4):331-349 | DOI: 10.18267/j.pep.225

Credit guarantees in a credit market with adverse selection

Karel Janda
Institute of Economic Studies, Charles University, Opletalova 26, CZ - 110 00 Prague 1 and University of Economics, 4, W. Churchill Sq., CZ - 130 67 Prague 3 (e-mail: Karel-Janda@seznam.cz).

This paper deals with government interventions in agricultural credit markets in the Czech Republic. I first describe the institutional setting and the empirics of agricultural credit in the Czech Republic. I explain the activities of the Czech Agricultural Guarantee Fund and compare it with similar institutions dealing with the support of agricultural credit in transition and developed market economies. Then I introduce an adverse selection model of credit provision with proportional credit guarantees. The model distinguishes two market regimes - a developed post-transition market economy and a transition economy. This distinction between transition and post-transition economies leads to different results generated by credit markets. Most notably, there is a failure of collateral as a screening instrument in credit markets of transition economies. With economic stabilization collateral resumes its role as a screening instrument.

Keywords: government intervention, adverse selection, agricultural credit
JEL classification: D82, G38, P34, Q14

Published: January 1, 2003  Show citation

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Janda, K. (2003). Credit guarantees in a credit market with adverse selection. Prague Economic Papers, 12(4), 331-349. doi: 10.18267/j.pep.225
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