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Product quality, lender liability, and consumer credit

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  • Elisabetta Iossa
  • Giuliana Palumbo

Abstract

Under 'linked credit' (also known as 'connected lending'), the buyer obtains a loan from a lender with the specific purpose of purchasing a certain product. Credit is arranged directly by the seller, who acts as an intermediary for the finance company. Within this form of financing, the lender often accepts a measure of liability for defective products. We show that 'connected-lender liability' can work as a signalling device for the reliability of sellers, so as to alleviate the market failure that arises when sellers are better informed than consumers about the quality of their products. Copyright 2004, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/oep/gpf044
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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 56 (2004)
Issue (Month): 2 (April)
Pages: 331-343

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Handle: RePEc:oup:oxecpp:v:56:y:2004:i:2:p:331-343

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Cited by:
  1. Alena Bicakova, 2007. "Does the Good Matter? Evidence on Moral Hazard and Adverse Selection from Consumer Credit Market," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 66(1), pages 29-66, March.
  2. Elisabetta Iossa & Giuliana Palumbo, 2006. "Overoptimism and Lender Liability in the Consumer Credit Market," Temi di discussione (Economic working papers) 598, Bank of Italy, Economic Research and International Relations Area.

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