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Credit Relationships: Evidence from Experiments with Real Bankers

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  • SIMON CORN√âE
  • DAVID MASCLET
  • GERVAIS THENET

Abstract

We experimentally examine to what extent long‐term “lender–borrower” relationships mitigate moral hazard. The originality of our research lies in recruiting not only students but also commercial and social bankers. The opportunity to engage in bilateral long‐term relationships mitigates the repayment problem. Lenders take advantage of their long‐term situation by increasing their rates. Consequently, borrowers are incited to take more risk. Improving information disclosure ameliorates the repayment but does not incite lenders to offer more credits. Social bankers exhibit a higher probability of granting a loan and make fairer credit offers to borrowers than the other subject pools do.
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  • Simon Corn√Âe & David Masclet & Gervais Thenet, 2012. "Credit Relationships: Evidence from Experiments with Real Bankers," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(5), pages 957-980, August.
    • Handle: RePEc:mcb:jmoncb:v:44:y:2012:i:5:p:957-980
    DOI: j.1538-4616.2012.00517.x
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