IDEAS home Printed from https://ideas.repec.org/a/ucp/ecdecc/v58y2010i2p345-372.html
   My bibliography  Save this article

Interest-Free Loans between Villagers

Author

Listed:
  • Loren Brandt
  • Arthur J. Hosios

Abstract

Interest-free loans are a common feature of low-income rural economies. In much of the economics literature, lending at zero and positive interest are viewed as being highly segmented in the community, with interest-free loans an essential component of long-term mutual consumption agreements between households. An alternative interpretation is that zero-interest loans are a credit contract that, in lieu of interest, includes an option allowing the lender to tax the borrower at a future date. This option can take a variety of forms, including the provision of labor or draft animal services or possibly a future loan. In this paper, we develop and test a model of household contract choice between zero- and positive-interest rate loans that builds on this alternative perspective. It highlights the role of borrower and lender attributes and the economic environment in which they interact in determining contract choice. Enforcement considerations are secondary. We use a unique household-level data set for rural China for the mid-1930s to examine key predictions of the model. (c) 2010 by The University of Chicago. All rights reserved.

Suggested Citation

  • Loren Brandt & Arthur J. Hosios, 2010. "Interest-Free Loans between Villagers," Economic Development and Cultural Change, University of Chicago Press, vol. 58(2), pages 345-372, January.
  • Handle: RePEc:ucp:ecdecc:v:58:y:2010:i:2:p:345-372
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1086/648184
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.

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

    Citations

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


    Cited by:

    1. Yuan, Yan & Xu, Lihe, 2015. "Are poor able to access the informal credit market? Evidence from rural households in China," China Economic Review, Elsevier, vol. 33(C), pages 232-246.
    2. Mallick, Debdulal, 2009. "How effective is a Big Push to the Small? Evidence from a Quasi-random Experiment," MPRA Paper 22824, University Library of Munich, Germany.
    3. Loren Brandt & Debin Ma & Thomas G. Rawski, 2014. "From Divergence to Convergence: Reevaluating the History behind China's Economic Boom," Journal of Economic Literature, American Economic Association, vol. 52(1), pages 45-123, March.
    4. Dezső, Linda & Loewenstein, George, 2012. "Lenders’ blind trust and borrowers’ blind spots: A descriptive investigation of personal loans," Journal of Economic Psychology, Elsevier, vol. 33(5), pages 996-1011.

    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:ucp:ecdecc:v:58:y:2010:i:2:p:345-372. 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: (Journals Division). General contact details of provider: http://www.journals.uchicago.edu/EDCC/ .

    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.

    We have no references for this item. You can help adding them by using 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.