Cosigned Or Group Loans
AbstractWe analyze lending contracts when social sanctions are used to enforce repayments and borrowers differ in their unobserved sanctioning abilities. Symmetric group loans are preferred to cosigned loans when borrowers are relatively equal, and cosigned loans are preferred when borrowers are unequal. This explains why microlenders that target the poor (e.g., the Grameen Bank) use symmetric group loans while other untargeted lenders use cosigned loans. Complicated menus of loan contracts that induce borrowers to self select can do no better than these simple loan contracts unless borrowers are very productive. In particular, we explain why group lending arrangements offering different loan terms to members of the same group are seldom observed.
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Bibliographic InfoPaper provided by Department of Economics, Williams College in its series Department of Economics Working Papers with number 2004-08.
Length: 37 pages
Date of creation: Jun 2004
Date of revision:
Publication status: published in Journal of Development Economics, February 2008, v. 85, iss. 1-2, pp. 58-80.
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
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ligon, Ethan & Thomas, Jonathan P & Worrall, Tim, 2002.
"Informal Insurance Arrangements with Limited Commitment: Theory and Evidence from Village Economies,"
Review of Economic Studies,
Wiley Blackwell, vol. 69(1), pages 209-44, January.
- Ethan Ligon & Jonathan P. Thomas & Tim Worrall, 2002. "Informal Insurance Arrangements with Limited Commitment: Theory and Evidence from Village Economies," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 209-244.
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