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Joint liability among bank borrowers

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  • Philip Bond

Abstract

A common feature of financial intermediaries is that the welfare of one borrower is adversely affected by the poor performance of other borrowers. That is, there exists a degree of joint liability among the borrowers of a financial intermediary. This paper provides an explanation for this observation. It demonstrates that in Krasa and Villamil's [14] formalization of a financial intermediary as a delegated monitor, intermediation with joint liability between borrowers Pareto dominates intermediation without joint liability. Copyright Springer-Verlag Berlin/Heidelberg 2004

Suggested Citation

  • Philip Bond, 2004. "Joint liability among bank borrowers," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 23(2), pages 383-394, January.
    • Handle: RePEc:spr:joecth:v:23:y:2004:i:2:p:383-394
    DOI: 10.1007/s00199-003-0381-4
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    Cited by:

    1. Philip Protter & Alejandra Quintos, 2022. "Optimal group size in microlending," Annals of Finance, Springer, vol. 18(1), pages 121-132, March.
    2. Abdul Ghafar Ismail & Bayu Taufiq Possumah, 2014. "Poverty and social security in Islam," Chapters, in: M. Kabir Hassan & Mervyn K. Lewis (ed.), Handbook on Islam and Economic Life, chapter 22, pages iii-iii, Edward Elgar Publishing.

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