Informal Credit Markets, Judicial Costs and Consumer Credit: Evidence from Firm Level Data
How does the punishment for default affect repayment behavior? We use administrative data provided by the leading Italian lender of unsecured credit to the household sector to investigate the effect of two potentially important factors: judicial efficiency and the availability of informal credit from family and friends. By making economic assumptions we can place upper and lower bounds on these effects. We find that the availability of informal credit reduces repayment, while variation in court enforcement has no significant effect. Moreover, households with access to informal credit are more likely to borrow from our lender
|Date of creation:||01 Feb 2006|
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