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Informal Credit Markets, Judicial Costs and Consumer Credit: Evidence from Firm Level Data

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Abstract

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

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  • Charles Grant & Mario Padula, 2006. "Informal Credit Markets, Judicial Costs and Consumer Credit: Evidence from Firm Level Data," CSEF Working Papers 155, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  • Handle: RePEc:sef:csefwp:155
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    Cited by:

    1. Alena Bicakova, 2007. "Does the Good Matter? Evidence on Moral Hazard and Adverse Selection from Consumer Credit Market," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 66(1), pages 29-66, March.
    2. Charles Yuji Horioka & Shizuka Sekita, 2011. "The Degree of Judicial Enforcement and Credit Markets: Evidence from Japanese Household Panel Data," International Review of Finance, International Review of Finance Ltd., vol. 11(2), pages 245-268, June.
    3. Luisa ANDERLONI & Daniela VANDONE, 2008. "Households over-indebtedness in the economic literature," Departmental Working Papers 2008-46, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    4. Barbara Cavalletti & Corrado Lagazio & Daniela Vandone & Elena Lagomarsino, 2012. "The role of financial position on consumer indebted-ness. An empirical analysis in Italy," DEP - series of economic working papers 8/2012, University of Genoa, Research Doctorate in Public Economics.
    5. Georgarakos, Dimitris & Fürth, Sven, 2015. "Household repayment behavior: The role of social capital and institutional, political, and religious beliefs," European Journal of Political Economy, Elsevier, vol. 37(C), pages 249-265.

    More about this item

    Keywords

    Households Borrowing; Informal Credit Markets; Asymmetric Information;

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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