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Using Repayment Data to Test Across Models of Joint Liability Lending

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  • Christian Ahlin
  • RobertM. Townsend

Abstract

Theories rationalising joint liability lending are rich in implications for repayment rates. We exploit this fact to test four diverse models. We show that the models' repayment implications do not always coincide. For example, higher correlation of output and borrowers' ability to act cooperatively can raise or lower repayment, depending on the model. Data from Thai borrowing groups suggest that repayment is affected negatively by the joint liability rate ("ceteris paribus") and social ties, and positively by the strength of local sanctions and correlated returns. Further, the relative fit of the adverse selection versus informal sanctions models varies by region. Copyright 2007 The Author(s). Journal compilation Royal Economic Society 2007.

Suggested Citation

  • Christian Ahlin & RobertM. Townsend, 2007. "Using Repayment Data to Test Across Models of Joint Liability Lending," Economic Journal, Royal Economic Society, vol. 117(517), pages 11-51, February.
  • Handle: RePEc:ecj:econjl:v:117:y:2007:i:517:p:f11-f51
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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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