Article(print)

The SBA's Justification IOU

In: Regulation: the Cato review of business and government, Volume 30, Issue 1, p. 26-34

de Rugy, Veronique

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Abstract

Critically examines the Small Business Administration's loan guarantee activities in terms of whether there is a market failure justifying government intervention. Attention is given to Joseph Stiglitz & Andrew Weiss's (1981) work on imperfect markets & the asymmetry in lender-borrower information, lending relationships & credit scoring as mechanisms to overcome the information problem, & research challenging the Stiglitz-Weiss model. An analysis of an SBA loan guarantee program indicates that SBA loans do not serve any public policy purpose; thus, such programs should be terminated. Tables. Adapted from the source document.

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