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MENTAL MODEL · M5938

Credit Rationing

Credit Rationing
BusinessHigh supportInformation Economics
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Updated 2026-08-05

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INTRODUCTION

English translation pending.

CORE DEFINITION

Credit rationing describes a market where banks refuse to lend even to borrowers willing to pay a higher interest rate. The core claim is that raising the rate worsens the borrower pool in two ways: adverse selection drives low-risk borrowers out while leaving high-risk ones, and moral hazard encourages those who remain to choose riskier projects. Since higher rates can therefore lower expected return, banks ration the quantity of credit instead of clearing the market by price. The qualification is that this is a consequence of asymmetric information, not of inefficiency.

SCAFFOLDING EFFECT

psychology

Reduce cognitive load

- Price Mechanism Failure: In markets short on trust, you cannot win opportunity simply by offering to pay more. - Overcommitment Signal: Offering a higher price or promising more work reads as a high-risk signal rather than a strong offer. - Collateral Proof: What works instead is hard evidence of capability, such as collateral or verified credentials.

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Anchor fast decisions

Under asymmetric information, raising the interest rate changes the composition of borrowers. Adverse selection pushes low-risk borrowers out and leaves high-risk ones, while moral hazard leads remaining borrowers toward riskier projects. Expected return can therefore fall as the rate rises, so the bank rations credit by quantity rather than raising price to clear the market.

MINIMUM ACTION

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Source support: Explicit

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    en.wikipedia.orghttps://en.wikipedia.org/wiki/Credit_rationingZH · Explicit
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