Credit Markets with Ethical Banks and Motivated Borrowers
This paper investigates banks’ corporate social responsibility. The credit market is composed of two sectors: one for standard and one for ethical projects. Since ethical banks are committed to investing in ethical projects, standard and ethical banks compete in the market for ethical projects. The latter have also a social profitability, but a lower expected revenue with respect to standard ones. If their expected revenue is not too low, ethical projects are undertaken by motivated borrowers. The latter obtain a benefit (a social responsibility premium) from accomplishing ethical projects in general and a premium for successful interaction when trading with ethical banks in the case the project is successful. If the expected profitability of ethical projects is sufficiently close to that of standard ones and/or the premium for successful interaction of motivated borrowers is sufficiently high, ethical banks are active, both sectors of the credit market exist and the whole market is fully segmented. This result holds true irrespective of the information structure: only moral hazard on the borrower side, moral hazard and screening on the borrower side. The optimal contract in our set-up is always a debt contract. However, its precise form and welfare properties depend on the information structure.
|Date of creation:||Sep 2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +39 051 209 8019 and 2600
Fax: +39 051 209 8040 and 2664
Web page: http://www.dse.unibo.it
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bénabou, Roland & Tirole, Jean, 2009.
"Individual and Corporate Social Responsibility,"
TSE Working Papers
09-109, Toulouse School of Economics (TSE).
- Besley, Timothy & Coate, Stephen, 1995.
"Group lending, repayment incentives and social collateral,"
Journal of Development Economics,
Elsevier, vol. 46(1), pages 1-18, February.
- Besley, T. & Coate, S., 1991. "Group Lending, Repayment Incentives And Social Collateral," Papers 152, Princeton, Woodrow Wilson School - Development Studies.
- Ghatak, Maitreesh, 1999. "Group lending, local information and peer selection," Journal of Development Economics, Elsevier, vol. 60(1), pages 27-50, October.
- Rabin, Matthew, 1993.
"Incorporating Fairness into Game Theory and Economics,"
American Economic Review,
American Economic Association, vol. 83(5), pages 1281-1302, December.
- M. Rabin, 2001. "Incorporating Fairness into Game Theory and Economics," Levine's Working Paper Archive 511, David K. Levine.
- Matthew Rabin., 1992. "Incorporating Fairness into Game Theory and Economics," Economics Working Papers 92-199, University of California at Berkeley.
- Timothy Besley & Maitreesh Ghatak, 2005.
"Competition and Incentives with Motivated Agents,"
American Economic Review,
American Economic Association, vol. 95(3), pages 616-636, June.
- Besley, Timothy J. & Ghatak, Maitreesh, 2004. "Competition and Incentives with Motivated Agents," CEPR Discussion Papers 4641, C.E.P.R. Discussion Papers.
- Timothy Besley & Maitreesh Ghatak, 2003. "Competition and incentives with motivated agents," LSE Research Online Documents on Economics 2202, London School of Economics and Political Science, LSE Library.
- Tim Besley & Maitreesh Ghatak, 2005. "Competition and incentives with motivated agents," LSE Research Online Documents on Economics 928, London School of Economics and Political Science, LSE Library.
- Michael Kosfeld & Ferdinand A. von Siemens, 2009.
"Worker Self-Selection and the Profits from Cooperation,"
Journal of the European Economic Association,
MIT Press, vol. 7(2-3), pages 573-582, 04-05.
- Kosfeld, Michael & von Siemens, Ferdinand, 2008. "Worker Self-Selection and the Profits from Cooperation," IZA Discussion Papers 3881, Institute for the Study of Labor (IZA).
- Maskin, Eric & Tirole, Jean, 1992. "The Principal-Agent Relationship with an Informed Principal, II: Common Values," Econometrica, Econometric Society, vol. 60(1), pages 1-42, January.
- Leland, Hayne E & Pyle, David H, 1977.
"Informational Asymmetries, Financial Structure, and Financial Intermediation,"
Journal of Finance,
American Finance Association, vol. 32(2), pages 371-87, May.
- Hayne E. Leland and David H. Pyle., 1976. "Informational Asymmetries, Financial Structure, and Financial Intermediation," Research Program in Finance Working Papers 41, University of California at Berkeley.
When requesting a correction, please mention this item's handle: RePEc:bol:bodewp:wp786. 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: (Luca Miselli)The email address of this maintainer does not seem to be valid anymore. Please ask Luca Miselli to update the entry or send us the correct address
If references are entirely missing, you can add them using this form.