Lender penalty for environmental damage and the equilibrium cost of capital

Anthony G. Heyes*

*Corresponding author for this work

Research output: Chapter in Book/Report/Conference proceedingChapter

Abstract

In a model of the lending relationship incorporating both adverse selection and moral hazard, we show that increasing the liability of lenders for environmental damage done by their borrowers has a qualitatively ambiguous impact upon interest rates. This calls into question the assertion of financial community representatives that such reform will necessarily driveup interest rates and have adverse macroeconomic consequences. If it is this fear which is preventing reform then that reluctance may, in the case of many classes of pollutant, be misplaced. The implications of such reform for credit-rationing are also explored.

Original languageEnglish
Title of host publicationEconomics and Liability for Environmental Problems
PublisherTaylor and Francis
Pages231-244
Number of pages14
ISBN (Electronic)9781315188133
ISBN (Print)9781138730632
Publication statusPublished - 12 Jan 2018

Bibliographical note

Publisher Copyright:
© Kathleen Sagerson 2002.

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)
  • General Business,Management and Accounting

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