Product quality, lender liability, and consumer credit |
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Authors: | Iossa, Elisabetta Palumbo, Giuliana |
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Affiliation: | * Department of Economics and Finance, Brunel University, Middlesex UB8 3PH; and CMPO, University of Bristol; e-mail: Elisabetta.Iossa{at}brunel.ac.uk
Research Department of Law and Economics, Bank of Italy, Via Milano 60/g, 00184, Rome, Italy; e-mail: palumbo.giuliana{at}insedia.interbusiness.it |
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Abstract: | Under linked credit (also known as connectedlending), the buyer obtains a loan from a lender withthe specific purpose of purchasing a certain product. Creditis arranged directly by the seller, who acts as an intermediaryfor the finance company. Within this form of financing, thelender often accepts a measure of liability for defective products.We show that connected-lender liability can workas a signalling device for the reliability of sellers, so asto alleviate the market failure that arises when sellers arebetter informed than consumers about the quality of their products. |
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