Strategic interaction in undeveloped credit markets
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Strategic interaction in undeveloped credit markets. / Andersen, Thomas Barnebeck; Malchow-Møller, Nikolaj.
I: Journal of Development Economics, Bind 80, Nr. 2, 2006, s. 275-298.Publikation: Bidrag til tidsskrift › Tidsskriftartikel › Forskning › fagfællebedømt
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TY - JOUR
T1 - Strategic interaction in undeveloped credit markets
AU - Andersen, Thomas Barnebeck
AU - Malchow-Møller, Nikolaj
N1 - JEL Classification: O1, D8, G2
PY - 2006
Y1 - 2006
N2 - This paper studies the strategic interaction between informal and formal lenders in undeveloped credit markets. In a model with adverse selection, loan seniority, market power, and differences in the cost of lending, it is shown that under general conditions a co-funding equilibrium will be a Nash outcome of the game. We demonstrate that a collateral requirement in connection with formal loans always generates a new co-funding equilibrium in which both lenders earn higher profits. A government subsidy to the formal lender may have the opposite effect. We relate our results to existing empirical evidence and the emerging discussion of how to best ensure financial viability and outreach of microfinance institutions
AB - This paper studies the strategic interaction between informal and formal lenders in undeveloped credit markets. In a model with adverse selection, loan seniority, market power, and differences in the cost of lending, it is shown that under general conditions a co-funding equilibrium will be a Nash outcome of the game. We demonstrate that a collateral requirement in connection with formal loans always generates a new co-funding equilibrium in which both lenders earn higher profits. A government subsidy to the formal lender may have the opposite effect. We relate our results to existing empirical evidence and the emerging discussion of how to best ensure financial viability and outreach of microfinance institutions
KW - Faculty of Social Sciences
KW - co-funding
KW - screening
KW - informal credit
U2 - 10.1016/j.jdeveco.2005.03.001
DO - 10.1016/j.jdeveco.2005.03.001
M3 - Journal article
VL - 80
SP - 275
EP - 298
JO - Journal of Development Economics
JF - Journal of Development Economics
SN - 0304-3878
IS - 2
ER -
ID: 314103