The Relation Between Patent Pledgeability and Credit Rationing

• We analyze the economic issue raised when financial intermediaries refuse to supply credit to a borrower even at a higher rate than that posted by lenders. We suggest that patent-backed loans can be used as a contracting device to reduce credit rationing in loan markets characterized by imperfect information. Patents have become among the most valuable assets of firms in high-technology industries. They determine the production of goods and contain information about the firms’ credit quality. Patents can also be used by banks to screen borrowers. We provide a theoretical foundation showing that patents used as collateral may reduce the level of information asymmetry in loan markets and facilitate also bank lending. Using a setup of financial intermediation with capital constrained entities and imperfect information, we suggest that patent pledging can be used to minimize credit rationing. This may lead to more investment in innovation and more growth

Subject headings

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business (hsv//eng)

Keyword

Banks

Financing

Credit rationing

Patents

Colleteral

Publication and Content Type

ref (subject category)

kap (subject category)