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Formal Credit, Corruption and the Informal Credit Market in Agriculture: A Theoretical Analysis

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  • Gupta, Manash Ranjan
  • Chaudhuri, Sarbajit

Abstract

The paper presents a theory of interest rate determination on informal credit in backward agriculture when there is a market for formal credit. The farmer has to bribe the official of the formal credit agency in order to get formal credit. The official and the moneylender play a non-cooperative game in choosing the amount of formal credit and the informal interest rate, respectively. The informal-sector interest rate and the effective formal-sector interest rate (incorporating the bribe) are equal in equilibrium. A reduction in the formal interest rate and/or an increase in the price of the product may lead to an increase in the equilibrium bribing rate and the informal interest rate when the formal credit and the informal credit are complementary to each other. Copyright 1997 by The London School of Economics and Political Science

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Bibliographic Info

Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 64 (1997)
Issue (Month): 254 (May)
Pages: 331-43

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Handle: RePEc:bla:econom:v:64:y:1997:i:254:p:331-43

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Cited by:
  1. Chaudhuri, Sarbajit & Gupta, Manash Ranjan, 2014. "International factor mobility, informal interest rate and capital market imperfection: A general equilibrium analysis," Economic Modelling, Elsevier, vol. 37(C), pages 184-192.
  2. Rajeev, Meenakshi & Vani, B P & Bhattacharjee, Manojit, 2012. "Nature and Dimensions of Farmers’ Indebtedness in India," MPRA Paper 42358, University Library of Munich, Germany.
  3. Duo Qin & Zhong Xu & Xue-Chun Zhang, 2013. "How Much Has Private Credit Lending Reacted to Monetary Policy in China? The Case of Wenzhou," Working Papers 178, Department of Economics, SOAS, University of London, UK.
  4. Chaudhuri, Sarbajit & Ghosh Dastidar, Krishnendu, 2011. "Vertical linkage between formal and informal credit markets: corruption and credit subsidy policy," MPRA Paper 35563, University Library of Munich, Germany.
  5. Sarbajit Chaudhuri, 2005. "Interaction Of Formal And Informal Credit Markets In Backward," Game Theory and Information 0511001, EconWPA.
  6. Marjit, Sugata & Ghosh, Sudeep & Biswas, Amit, 2007. "Informality, corruption and trade reform," European Journal of Political Economy, Elsevier, vol. 23(3), pages 777-789, September.
  7. Reyes Calderón & José Luís Álvarez Arce, . "Corruption, Complexity and Governance," Faculty Working Papers 11/07, School of Economics and Business Administration, University of Navarra.
  8. Sarbajit Chaudhuri, 2005. "Interactions Between Two Informal Sector Lenders And Interest Rate Determination In The Informal Credit Market: A Theoretical Analysis," Game Theory and Information 0511003, EconWPA.
  9. Asad K. Ghalib, 2011. "Estimating the depth of microfinance programme outreach: empirical findings from rural Pakistan," Brooks World Poverty Institute Working Paper Series 15411, BWPI, The University of Manchester.
  10. Soumyen Sikdar & Sarbajit Chaudhuri, 2005. "A Model Of Corruption In An Investment Project," Public Economics 0510020, EconWPA.
  11. Chaudhuri, Sarbajit & Ghosh Dastidar, Krishnendu, 2009. "Corruption in a Model of Vertical Linkage between Formal and Informal Credit Sources and Credit Subsidy Policy," MPRA Paper 18006, University Library of Munich, Germany.
  12. Chaudhuri, Sarbajit & Ghosh Dastidar, Krishnendu, 2014. "Vertical Linkage between Formal and Informal Credit Markets, Corruption and Credit Subsidy policy: A Note," MPRA Paper 53344, University Library of Munich, Germany.
  13. Chaudhuri, Sarbajit & Gupta, Manash Ranjan, 2013. "Endogenous Capital Market Imperfection, Informal Interest Rate Determination and International Factor mobility in a General Equilibrium Model," MPRA Paper 51157, University Library of Munich, Germany.
  14. Chaudhuri, Sarbajit & Mandal, Biswajit, 2012. "Bureaucratic reform, informal sector and welfare," MPRA Paper 36072, University Library of Munich, Germany.
  15. Barnaud, Cécile & Bousquet, François & Trebuil, Guy, 2008. "Multi-agent simulations to explore rules for rural credit in a highland farming community of Northern Thailand," Ecological Economics, Elsevier, vol. 66(4), pages 615-627, July.
  16. Lambsdorff, Johann Graf, 2002. "Making corrupt deals: contracting in the shadow of the law," Journal of Economic Behavior & Organization, Elsevier, vol. 48(3), pages 221-241, July.

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