IDEAS home Printed from https://ideas.repec.org/a/oup/ajagec/v89y2007i4p991-1004.html
   My bibliography  Save this article

Risk, Wealth, and Sectoral Choice in Rural Credit Markets

Author

Listed:
  • Steve Boucher
  • Catherine Guirkinger

Abstract

We model the role of the informal credit sector in developing countries. The informational advantage of informal lenders is portrayed as the ability to monitor borrowers. Monitoring reduces the incentive problem and allows for contracts with lower collateral. This enables informal lenders to serve both individuals who cannot post the collateral required by the formal sector and those who are able but do not want to post collateral. The model is consistent with the conventional view of the informal sector as recipient of spillover demand from the formal sector. It also shows that the informal sector may provide partial insurance as the lower collateral requirement implies greater consumption smoothing for borrowers. Copyright 2007, Oxford University Press.

Suggested Citation

  • Steve Boucher & Catherine Guirkinger, 2007. "Risk, Wealth, and Sectoral Choice in Rural Credit Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(4), pages 991-1004.
  • Handle: RePEc:oup:ajagec:v:89:y:2007:i:4:p:991-1004
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1111/j.1467-8276.2007.01009.x
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Grossman, Sanford J & Hart, Oliver D, 1983. "An Analysis of the Principal-Agent Problem," Econometrica, Econometric Society, vol. 51(1), pages 7-45, January.
    2. Thiele, Henrik & Wambach, Achim, 1999. "Wealth Effects in the Principal Agent Model," Journal of Economic Theory, Elsevier, vol. 89(2), pages 247-260, December.
    3. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    4. Kochar, Anjini, 1997. "An empirical investigation of rationing constraints in rural credit markets in India," Journal of Development Economics, Elsevier, vol. 53(2), pages 339-371, August.
    5. Efraín Gonzales de Olarte, 1996. "El Ajuste Estructural y los Campesinos," Libros no PUCP / Books other publishers, Otras editoriales / Other publishers, edition 1, number otr-1996-04, February.
    6. Conning, Jonathan, 1999. "Outreach, sustainability and leverage in monitored and peer-monitored lending," Journal of Development Economics, Elsevier, vol. 60(1), pages 51-77, October.
    7. Christian Gollier, 2004. "The Economics of Risk and Time," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262572249, January.
    8. Bell, Clive & Srinivasan, T N & Udry, Christopher, 1997. "Rationing, Spillover, and Interlinking in Credit Markets: The Case of Rural Punjab," Oxford Economic Papers, Oxford University Press, vol. 49(4), pages 557-585, October.
    9. Carter, Michael R., 1988. "Equilibrium credit rationing of small farm agriculture," Journal of Development Economics, Elsevier, vol. 28(1), pages 83-103, February.
    10. Barham, Bradford L. & Boucher, Stephen & Carter, Michael R., 1996. "Credit constraints, credit unions, and small-scale producers in Guatemala," World Development, Elsevier, vol. 24(5), pages 793-806, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pal, Debdatta & Laha, Arnab K., 2015. "Sectoral credit choice in rural India," Journal of choice modelling, Elsevier, vol. 14(C), pages 1-16.
    2. Keenan, Donald C. & Snow, Arthur, 2010. "Greater prudence and greater downside risk aversion," Journal of Economic Theory, Elsevier, vol. 145(5), pages 2018-2026, September.
    3. Guirkinger, Catherine, 2008. "Understanding the Coexistence of Formal and Informal Credit Markets in Piura, Peru," World Development, Elsevier, vol. 36(8), pages 1436-1452, August.
    4. Kazunari TSUKADA & Takayuki HIGASHIKATA & Kazushi TAKAHASHI, 2010. "Microfinance Penetration And Its Influence On Credit Choice In Indonesia: Evidence From A Household Panel Survey," The Developing Economies, Institute of Developing Economies, vol. 48(1), pages 102-127.
    5. Richter, Susan M., 2008. "The Insurance Role of Remittances on Household Credit Demand," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6261, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    6. Togba, Edith Leadaut, 2012. "Microfinance and households access to credit: Evidence from Côte d’Ivoire," Structural Change and Economic Dynamics, Elsevier, vol. 23(4), pages 473-486.
    7. Turvey, Calum G. & Kong, Rong, 2010. "Informal lending amongst friends and relatives: Can microcredit compete in rural China?," China Economic Review, Elsevier, vol. 21(4), pages 544-556, December.
    8. repec:bla:ecnote:v:46:y:2017:i:3:p:587-632 is not listed on IDEAS
    9. Islam, Asadul & Nguyen, Chau & Smyth, Russell, 2015. "Does microfinance change informal lending in village economies? Evidence from Bangladesh," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 141-156.
    10. Boucher, Stephen R. & Guirkinger, Catherine & Trivelli, Carolina, 2006. "Direct Elicitation of Credit Constraints: Conceptual and Practical Issues with an Empirical Application to Peruvian Agriculture," Working Papers 6883, University of California, Davis, Department of Agricultural and Resource Economics.
    11. Mukasa Adamon N. & Anthony M. Simpasa & Adeleke Oluwole Salami, 2017. "Working Paper 247 - Credit constraints and farm productivity: Micro-level evidence from smallholder farmers in Ethiopia," Working Paper Series 2356, African Development Bank.
    12. Bhattamishra, Ruchira & Barrett, Christopher B., 2010. "Community-Based Risk Management Arrangements: A Review," World Development, Elsevier, vol. 38(7), pages 923-932, July.
    13. Gupta, Vivek & Bhandari, Basu D. & Gautam, Tej K., 2016. "Choice of Income Generating Activities by Nepalese Farmers," 2016 Annual Meeting, February 6-9, 2016, San Antonio, Texas 230131, Southern Agricultural Economics Association.
    14. repec:eee:regeco:v:67:y:2017:i:c:p:108-118 is not listed on IDEAS
    15. Kati Schindler, 2010. "Credit for What? Informal Credit as a Coping Strategy of Market Women in Northern Ghana," Journal of Development Studies, Taylor & Francis Journals, vol. 46(2), pages 234-253.
    16. Edward B. Barbier & Ramón E. López & Jacob P. Hochard, 2016. "Debt, Poverty and Resource Management in a Rural Smallholder Economy," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 63(2), pages 411-427, February.
    17. Catherine Guirkinger & Stephen R. Boucher, 2008. "Credit constraints and productivity in Peruvian agriculture," Agricultural Economics, International Association of Agricultural Economists, vol. 39(3), pages 295-308, November.
    18. Andersson, Camilla I.M., 2011. "Counterproductive Counternarcotic Strategies?," Discussion Papers 118959, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
    19. Debdatta Pal & Arnab Laha, 2014. "Credit off-take from formal financial institutions in rural India: quantile regression results," Agricultural and Food Economics, Springer;Italian Society of Agricultural Economics (SIDEA), vol. 2(1), pages 1-20, December.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:ajagec:v:89:y:2007:i:4:p:991-1004. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum). General contact details of provider: http://edirc.repec.org/data/aaeaaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.