Group lending with adverse selection

Authors/Editors

Research Areas

Publication Details

Output type: Other

Author list: Laffont JJ, N'Guessan T

Publisher: Elsevier

Publication year: 2000

Journal: European Economic Review (0014-2921)

Volume number: 44

Issue number: 4-6

Start page: 773

End page: 784

Number of pages: 12

ISSN: 0014-2921

eISSN: 1873-572X

Languages: English-Great Britain (EN-GB)

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Open access status: closed

Abstract

We focus on adverse selection as a foundation of group lending. In a simple static model we show that there is no collateral effect if borrowers do not know each other. If the borrowers know each other, group lending implements efficient lending. However, it is not robust to collusive behavior, when transfers are allowed between colluding partners, Finally, we characterize the optimal collusion-proof group contract. (C) 2000 Elsevier Science B.V. All rights reserved. JEL classification: O2; G2; C7.

Keywords

adverse selection, development, group lending

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