Tenency, Credit Markets, Segmentation, and Hierarchical Loan Contracts
AbstractThe paper studies the competitive strategies of two informal lenders, traders and landlords, in the provision of credit to tenants. Each lender has a distinct market or enforcement advantage. It is shown that when lenders compete 'directly', i.e. in contracts, the landlord has the 'interlocker's edge' but the trader will lend to tenants. If 'indirect' strategies are allowed, however, a more segmented market emerges. Traders lend to the tenants of 'small' landlords, while 'larger' landlords borrow from traders and on-lend to their own tenants. It is shown that such hierarchically linked contracts can reduce tenant welfare. Further, the terms of the tenancy contract vary systematically with the tenant's loan source. The model's predictions are tested empirically.
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Bibliographic InfoPaper provided by Boston University, Institute for Economic Development in its series Boston University - Institute for Economic Development with number 72.
Date of creation: Feb 1996
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