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Information and enforcement in informal credit markets
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Ghosh, Parikshit and Ray, Debraj (2016) Information and enforcement in informal credit markets. Economica, 83 (329). pp. 59-90. doi:10.1111/ecca.12169 ISSN 0013-0427.
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Official URL: http://dx.doi.org/10.1111/ecca.12169
Abstract
We study loan enforcement in informal credit markets with multiple lenders but no sharing of credit histories, and derive the dynamics of loan size and interest rates for relational lending. In the presence of a sufficient fraction of ‘natural defaulters’, the rest of the market can be incentivized against default by micro-rationing—sharper credit limits and possibly higher interest rates that serve as gateways into new borrowing relationships. When there are too few natural defaulters in the market, this can be supplemented by macro-rationing—random exclusion of some borrowers. When information collection is endogenized, multiple equilibria may arise.
Item Type: | Journal Article | ||||||||
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Divisions: | Faculty of Social Sciences > Economics | ||||||||
Journal or Publication Title: | Economica | ||||||||
Publisher: | Blackwell Publishing | ||||||||
ISSN: | 0013-0427 | ||||||||
Official Date: | 18 January 2016 | ||||||||
Dates: |
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Volume: | 83 | ||||||||
Number: | 329 | ||||||||
Page Range: | pp. 59-90 | ||||||||
DOI: | 10.1111/ecca.12169 | ||||||||
Status: | Peer Reviewed | ||||||||
Publication Status: | Published | ||||||||
Access rights to Published version: | Restricted or Subscription Access | ||||||||
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