Adverse selection as an explanation of credit rationing and different lender types

An adverse selection model is utilized to demonstrate that informational asymmetry may make it wealth optimal for the financial intermediary (FI) to credit ration and to rationalize the existence of different lenders in the credit market. The crucial assumption is that borrowers differ in their tolerance for a lender-imposed default penalty, the severity of which also varies with the lender. The credit rationing portion proves that the FI will: 1) be forced by a binding regulatory constraint to overinvest in capital; 2) ration its worst risk class borrowers; 3) establish its optimal loan interest rate on the basis of the average quality of its loans and the interest rate elasticity of the borrower demand in its best risk category; and 4) decrease the total loan volume and increase the loan interest rate due to an increase in the capital requirement, but the effect on the default risk quality of its loan portfolio is ambiguous. The existence result is that if a lender has a high default penalty, he can charge a lower rate and attract only “good” borrowers, i.e., heterogeneous lender types encourage the screening of borrowers and vice versa.     

Beijing meeting puts China on the tourist map

In Beijing from 28 February–4 March 1983. 1000 delegates from 45 countries came together for the first China International Tourism Conference. Sponsored jointly by the China National Tourism Adminis- tration and the Civil Aviation Administration of China, this conference marked an important point in the development of the tourist industry of that country. Chuck Y. Gee, Dean of the School of Travel Industry Management at the University of Hawaii, and author of an article on the tourist industry in China in this issue, attended the conference.     

Structural shifts in urban population density gradients: an empirical investigation

This study investigates the structural shifts in urban population density gradients by first using the shifting regression technique of Farley, Hinich, and McGuire to detect the possible change in the structure of an urban area. Secondly, a generalized random coefficient technique is used to simultaneously detect the possible structural change and stochastic behavior of density gradients. Data for 50 United States SMSA's are used to do the empirical analyses.     

ENVIRONMENTAL VARIABLES OF MULTINATIONAL TRANSFER PRICING: A U.K. PERSPECTIVE

This paper reports the findings from an empirical study of multinational transfer pricing based on the information provided by 47 British multinational companies. The results indicate that company profit after tax was the key consideration for those companies in formulating their international transfer pricing policies. In addition, they also considered other important variables including the competitive position of their foreign subsidiaries, divisional performance evaluation, and foreign restrictions on repatriation of profits. Six dimensions of environment variables of multinational transfer pricing were also extracted using factor analysis technique.