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Lenders usually know less than borrowers about payoff-relevant borrower attributes. These attributes may be a personal characteristic as in Jaffee-Russell [1976] or some parameter of an earnings distribution as in Stiglitz-Weiss (SW)[1981]. In either case, the informational asymmetry is likely to affect the credit market equilibrium.

The principal objective of this paper is to explore the role of market structure in credit allocation when there is such an informational asymmetry. The ques-tions to which we seek answers are: Why do lenders sometimes ration credit even when deposit availability is relatively unconstrained? What is the economic function of collateral and how is its usefulness affected by credit market structure? What is the impact of collateral on credit rationing? Why do we observe co-signers?