Interest-Free Loans between Villagers
AbstractInterest-free loans are a common feature of low-income rural economies. In much of the economics literature, lending at zero and positive interest are viewed as being highly segmented in the community, with interest-free loans an essential component of long-term mutual consumption agreements between households. An alternative interpretation is that zero-interest loans are a credit contract that, in lieu of interest, includes an option allowing the lender to tax the borrower at a future date. This option can take a variety of forms, including the provision of labor or draft animal services or possibly a future loan. In this paper, we develop and test a model of household contract choice between zero- and positive-interest rate loans that builds on this alternative perspective. It highlights the role of borrower and lender attributes and the economic environment in which they interact in determining contract choice. Enforcement considerations are secondary. We use a unique household-level data set for rural China for the mid-1930s to examine key predictions of the model. (c) 2010 by The University of Chicago. All rights reserved..
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by University of Chicago Press in its journal Economic Development and Cultural Change.
Volume (Year): 58 (2010)
Issue (Month): 2 (01)
Contact details of provider:
Web page: http://www.journals.uchicago.edu/EDCC/
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Loren Brandt & Debin Ma & Thomas G. Rawski, 2012.
"From divergence to convergence: re-evaluating the history behind China’s economic boom,"
Economic History Working Papers
41660, London School of Economics and Political Science, Department of Economic History.
- Loren Brandt & Debin Ma & Thomas G. Rawski, 2012. "From Divergence to Convergence: Re-evaluating the History Behind China's Economic Boom," Global COE Hi-Stat Discussion Paper Series gd11-217, Institute of Economic Research, Hitotsubashi University.
- Brandt, Loren & Ma, Debin & Rawski, Thomas, 2013. "From Divergence to Convergence: Re-evaluating the History Behind China’s Economic Boom," CAGE Online Working Paper Series 116, Competitive Advantage in the Global Economy (CAGE).
- Loren Brandt & Debin Ma & Thomas G. Rawski, 2013. "From divergence to convergence: re-evaluating the history behind China’s economic boom," Economic History Working Papers 50816, London School of Economics and Political Science, Department of Economic History.
- Mallick, Debdulal, 2009. "How effective is a Big Push to the Small? Evidence from a Quasi-random Experiment," MPRA Paper 22824, University Library of Munich, Germany.
- Dezső, Linda & Loewenstein, George, 2012. "Lenders’ blind trust and borrowers’ blind spots: A descriptive investigation of personal loans," Journal of Economic Psychology, Elsevier, vol. 33(5), pages 996-1011.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division).
If references are entirely missing, you can add them using this form.