Table B-1. Table of results
Variables to be Pooling Pooling
analyzed after the R = k+ 01 R = k + 2 borrowers Separating Equilibrium
first period borrowers 1
Fraction of safe
borrowers that get 100 0 PHs
loans
Fraction of risky
borrowers that get 100 0, PHr, or1 PHr or **
loans
Fraction of total PsPHs +
borrowers that get 100 p, [0, PH, or 1 ] *
loans Pr(PHr or1)**
Bank's profits from a S 0 PsS1
safe borrower
PHr [92 (k + 0 ) +
Bank's profits from a 92 (k + 01) + 1)2(k+ 0) +
risky borrower (1 g2)(k 02 1 (1 (k02) 1
PLr S2
Safe borrower's 0 0 0
profits
Risky borrower's 92(02 ) 0 P (O2 -
profis2 (02 1-0) 0 PHr 2 (02 1 0)
profits
The table assumes there are no liquidity constraints.
Recall equation (2-3) states that 3j: E J-1> 92(2-01).
.PH J,ht+j-l S1
* If (2-3) holds for all borrowers, then 0; if (2-3) holds only for those for whom Sit = H, then PHr; if (2-3) does not hold for any borrower, then 1.
** If for those who got a L signal, (2-3) holds, then PHr ; if it does not, then 1.
*** S2 = 92(k + 02) + (1 92)(k -02) 1