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An Empirical Investigation of Reputation Loan Size Dynamics in Rural Credit Markets in Honduras

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  • Stukel, Sundaram, Reka

    (U of Wisconsin)

  • Barham, Bradford L.

Abstract

This paper examines the role of two types of reputation - borrower credit history and productivity - in disequilibrium supply and demand models of loan size dynamics in formal and informal credit markets. Using panel data on Honduran households, full- and partialinformation regime switching econometric models yield four principal findings: (1) credit contracts in the formal sector are largely collateral driven and not reputation driven; (2) the informal sector credit contracts are borrower reputation based; (3) the informal sector utilizes positive/negative credit histories in both markets to credibly reward/punish borrowers; and (4) technical efficiency has a positive impact in determining loan size in both sectors on the demand and supply side of the market.

Suggested Citation

  • Stukel, Sundaram, Reka & Barham, Bradford L., 2007. "An Empirical Investigation of Reputation Loan Size Dynamics in Rural Credit Markets in Honduras," Staff Paper Series 520, University of Wisconsin, Agricultural and Applied Economics.
    • Handle: RePEc:ecl:wisagr:520
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    File URL: http://www.aae.wisc.edu/pubs/sps/pdf/stpap520.pdf
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