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Credit Relationships: Evidence from Experiments with Real Bankers

  • SIMON CORNÉE
  • DAVID MASCLET
  • GERVAIS THENET

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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File URL: http://hdl.handle.net/10.1111/j.1538-4616.2012.00517.x
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Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 44 (2012)
Issue (Month): 5 (08)
Pages: 957-980

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Handle: RePEc:mcb:jmoncb:v:44:y:2012:i:5:p:957-980
Contact details of provider: Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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