Of Pirates and Moneylenders: Product Market Competition and the Depth of Lending relationships in a rural market in Chile
AbstractIt is often suggested that interlinked and monitored loan contract terms such as those used by trader-lenders in rural markets serve as collateral substitutes and therefore should benefit asset-poor borrowers in particular. Yet, empirically this is not always true. For example, most of the new monitored finance from contract farming firms and agro-industry traders during Chile’s recent agricultural boom went to medium and large commercial farmers and traditional forms of monitored finance for collateral poor farmers from informal trader-moneylenders actually may have declined. Based on interviews and historical accounts of this market and the analysis of a theoretical model, this paper argues that lenders may have been forced to reduce tied-credit to small farmers in several crops because increased product market competition exacerbated the problem of "pirates sales'' or post-harvest opportunistic default. This further restricted the already narrow set of enforceable property claims upon which monitored credit contracts to solve ex-ante moral hazard contracting problems could have been fashioned. This problem was avoided in crops where product markets are more concentrated and in export activities where crop liens are easier to establish with better capitalized farmers. The model points to an important connection between the nature of market competition and the depth of lending relationships that appears to be important in many other contexts.
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 InfoPaper provided by Department of Economics, Williams College in its series Department of Economics Working Papers with number 2000-08.
Length: 51 pages
Date of creation: Jul 2001
Date of revision:
Find related papers by JEL classification:
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- N26 - Economic History - - Financial Markets and Institutions - - - Latin America; Caribbean
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Marcel Fafchamps, 2009.
"Vulnerability, Risk Management, and Agricultural Development,"
CSAE Working Paper Series
2009-11, Centre for the Study of African Economies, University of Oxford.
- Fafchamps, Marcel, 2010. "Vulnerability, risk management and agricultural development," African Journal of Agricultural and Resource Economics, African Association of Agricultural Economists, vol. 5(1), September.
- Marcel Fafchamps, 2009. "Vulnerability, Risk Management, and Agricultural Development," Economics Series Working Papers CSAE WPS/2009-11, University of Oxford, Department of Economics.
- Swinnen, Johan F.M. & Vandeplas, Anneleen, 2007. "Contracting, Competition, and Rent Distribution Theory and Empirical Evidence from Developing and Transition Countries," 103rd Seminar, April 23-25, 2007, Barcelona, Spain 9413, European Association of Agricultural Economists.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Stephen Sheppard).
If references are entirely missing, you can add them using this form.