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Capacity-constrained Collusive Price Discrimination in the Informal Rural Credit Markets of Nepal

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  • Magnus Hatlebakk

Abstract

The author tests two alternative models of price determination in informal rural credit markets, using LSMS data from Nepal. Strong support is found for a capacity-constrained collusive oligopoly model, where lenders have full information about actual borrowers and charge heterogeneous interest rates. Only marginal support is found for a competitive cost-pricing model with imperfect information. Interest rates vary with the observable characteristics of caste, installment period, and geographical region; and they decrease as village lending capacity increases up to a certain level. Interest rates do not depend on risk related variables such as land value and loan size. Copyright © 2008 The Author. Journal compilation © 2008 Blackwell Publishing Ltd.

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  • Magnus Hatlebakk, 2009. "Capacity-constrained Collusive Price Discrimination in the Informal Rural Credit Markets of Nepal," Review of Development Economics, Wiley Blackwell, vol. 13(1), pages 70-86, February.
  • Handle: RePEc:bla:rdevec:v:13:y:2009:i:1:p:70-86
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    References listed on IDEAS

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    1. Hoff, Karla & Stiglitz, Joseph E., 1998. "Moneylenders and bankers: price-increasing subsidies in a monopolistically competitive market," Journal of Development Economics, Elsevier, vol. 55(2), pages 485-518, April.
    2. Aleem, Irfan, 1990. "Imperfect Information, Screening, and the Costs of Informal Lending: A Study of a Rural Credit Market in Pakistan," World Bank Economic Review, World Bank Group, vol. 4(3), pages 329-349, September.
    3. Hatlebakk, M., 2000. "Will More Credit Increase Interest Rates in Rural Nepal?," Norway; Department of Economics, University of Bergen 2100, Department of Economics, University of Bergen.
    4. William A. Brock & José A. Scheinkman, 1985. "Price Setting Supergames with Capacity Constraints," Review of Economic Studies, Oxford University Press, vol. 52(3), pages 371-382.
    5. Floro, Maria Sagrario & Ray, Debraj, 1997. "Vertical Links between Formal and Informal Financial Institutions," Review of Development Economics, Wiley Blackwell, vol. 1(1), pages 34-56, February.
    6. John Adams & Hans-Peter Brunner & Frank Raymond, 2003. "Interactions of Informal and Formal Agents in South Asian Rural Credit Markets," Review of Development Economics, Wiley Blackwell, vol. 7(3), pages 431-444, August.
    7. Basu, Kaushik & Bell, Clive, 1991. "Fragmented duopoly : Theory and applications to backward agriculture," Journal of Development Economics, Elsevier, vol. 36(2), pages 145-165, October.
    8. Bell, Clive, 1990. "Interactions between Institutional and Informal Credit Agencies in Rural India," World Bank Economic Review, World Bank Group, vol. 4(3), pages 297-327, September.
    9. Siamwalla, Ammar, et al, 1990. "The Thai Rural Credit System: Public Subsidies, Private Information, and Segmented Markets," World Bank Economic Review, World Bank Group, vol. 4(3), pages 271-295, September.
    10. Bose, Pinaki, 1998. "Formal-informal sector interaction in rural credit markets," Journal of Development Economics, Elsevier, vol. 56(2), pages 265-280, August.
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    Cited by:

    1. Vegard Iversen & Adriaan Kalwij & Arjan Verschoor & Amaresh Dubey, 2014. "Caste Dominance and Economic Performance in Rural India," Economic Development and Cultural Change, University of Chicago Press, vol. 62(3), pages 423-457.
    2. Magnus Hatlebakk, 2014. "Poverty Dynamics in Rural Orissa: Transitions in Assets and Occupations over Generations," Journal of Development Studies, Taylor & Francis Journals, vol. 50(6), pages 877-893, June.
    3. Magnus Hatlebakk, 2012. "Myopic preferences or subsistence income? Why do rickshaw cyclists rent the cycle?," CMI Working Papers 1, CMI (Chr. Michelsen Institute), Bergen, Norway.
    4. Magnus Hatlebakk, 2012. "Son-preference, number of children, education and occupational choice in rural Nepal," CMI Working Papers 8, CMI (Chr. Michelsen Institute), Bergen, Norway.
    5. repec:pal:eurjdr:v:29:y:2017:i:2:d:10.1057_s41287-016-0014-y is not listed on IDEAS
    6. Bell, Clive & Mukhopadhyay, Abhiroop, 2015. "Income Guarantees and Borrowing in Risky Environments: Evidence from India's Rural Employment Guarantee Scheme," IZA Discussion Papers 9357, Institute for the Study of Labor (IZA).
    7. Aryal, Jeetendra P. & Holden, Stein T., 2011. "Caste, Land and Labor Market Imperfections, and Land Productivity in Rural Nepal," CLTS Working Papers 6/11, Norwegian University of Life Sciences, Centre for Land Tenure Studies.
    8. Marie-Catherine Riekhof, 2016. "The Insurance Premium in the Interest Rates of Interlinked Loans in a Small-scale Fishery," CER-ETH Economics working paper series 16/264, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.

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