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Joint Liability Lending and the Peer Selection Effect

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  • Shubhashis Gangopadhyay
  • Maitreesh Ghatak
  • Robert Lensink

Abstract

We show that the joint liability lending contracts derived in Ghatak (2000) violate an "ex post" incentive-compatibility constraint which says that the amount of joint liability cannot exceed the amount of individual liability. We derive and characterise optimal separating joint liability contracts incorporating this constraint. Copyright 2005 Royal Economic Society.

Suggested Citation

  • Shubhashis Gangopadhyay & Maitreesh Ghatak & Robert Lensink, 2005. "Joint Liability Lending and the Peer Selection Effect," Economic Journal, Royal Economic Society, vol. 115(506), pages 1005-1015, October.
  • Handle: RePEc:ecj:econjl:v:115:y:2005:i:506:p:1005-1015
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