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Income Distribution, Transaction Costs and Market Fragmentation in Informal Credit Markets

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  • Yotopoulos, Pan A
  • Floro, Sagrario L

Abstract

In an environment characterized by inequitable wealth distribution and limited market-infrastructural institutions, the trust component of credit transactions is founded on personal relations. Through these, information and transaction costs advantages are provided; but also control and unequal bargaining power can be exercised. In the informal sector, transaction and information costs will lead to non-price closure in credit markets, while behavioral differences in lenders will lead to manipulation of prices as well as of quantities. The quantity-closure rules are modeled and tested for two types of informal lenders in the agricultural sector of the Philippines, the trader-lenders and the farmer-lenders. It is found that the two groups of lenders systematically sort their borrowers and ration credit. Copyright 1992 by Oxford University Press.

Suggested Citation

  • Yotopoulos, Pan A & Floro, Sagrario L, 1992. "Income Distribution, Transaction Costs and Market Fragmentation in Informal Credit Markets," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 16(3), pages 303-326, September.
    • Handle: RePEc:oup:cambje:v:16:y:1992:i:3:p:303-26
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    Cited by:

    1. Berg, Nathan, 2006. "Behavioral Labor Economics," MPRA Paper 26366, University Library of Munich, Germany.
    2. van Staveren, I.P., 2005. "Five methodological approaches for research on gender and trade impacts," ISS Working Papers - General Series 19176, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    3. 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.
    4. Wichyada Tanomchat & San Sampattavanija, 2018. "Dependence of Informal Interest Rates and Level of Lenders’ Influence in the Informal Loan Market in Thailand," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 24(1), pages 47-63, February.

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