Learning by lending

Date: 2019-01-01

Creator: Matthew Botsch, Victoria Vanasco

Access: Open access

This paper studies bank learning through repeated interactions with borrowers from a new perspective. To understand learning by lending, we adapt a methodology from labor economics to analyze how loan contract terms evolve as banks acquire new information about borrowers. We construct “proxy” variables for this information using data from borrowers’ out-of-sample, future credit performance. Due to the timing of their construction, banks could not have used these variables directly to price loans. We nonetheless find that these proxies increasingly predict loan prices as relationships progress, even after controlling for possible omitted variable bias. Our methodology provides strong evidence that: (a) bank learning affects loan prices, and (b) relationship benefits are heterogeneous. In particular, higher quality borrowers face differentially lower spreads as their relationship with lenders develop – and banks learn about their quality – while lower quality borrowers see loan prices increase and their loan amounts fall. We further find suggestive evidence that banks incorporate CEO-specific information into loan prices.

Consequences of toxic secondary compounds in nectar for mutualist bees and antagonist butterflies

Date: 2016-10-01

Creator: Patricia L. Jones, Anurag A. Agrawal

Access: Open access

Attraction of mutualists and defense against antagonists are critical challenges for most organisms and can be especially acute for plants with pollinating and non-pollinating flower visitors. Secondary compounds in flowers have been hypothesized to adaptively mediate attraction of mutualists and defense against antagonists, but this hypothesis has rarely been tested. The tissues of milkweeds (Asclepias spp.) contain toxic cardenolides that have long been studied as chemical defenses against herbivores. Milkweed nectar also contains cardenolides, and we have examined the impact of manipulating cardenolides in nectar on the foraging choices of two flower visitors: generalist bumble bees, Bombus impatiens, which are mutualistic pollinators, and specialist monarch butterflies, Danaus plexippus, which are herbivores as larvae and ineffective pollinators as adults. Although individual bumble bees in single foraging bouts showed no avoidance of cardenolides at the highest natural concentrations reported for milkweeds, a pattern of deterrence did arise when entire colonies were allowed to forage for several days. Monarch butterflies were not deterred by the presence of cardenolides in nectar when foraging from flowers, but laid fewer eggs on plants paired with cardenolide-laced flowers compared to controls. Thus, although deterrence of bumble bees by cardenolides may only occur after extensive foraging, a primary effect of nectar cardenolides appears to be reduction of monarch butterfly oviposition.