Microfinance,subsidies and local externalities |
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Authors: | Leonardo Becchetti Fabio Pisani |
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Institution: | (1) Facolta Di Economia, Dipartimento Di Econ. E Istituz, Universita Tor Vergata, Via Columbia 2, Roma, 133, Italy |
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Abstract: | We analyse equilibrium borrowers’ effort and the cost of microcredit loans in the presence of moral hazard, project correlation
and subsidies under group lending conditions. Our results show that under the assumption of endogenous effort, project correlation
has significant effects on borrowers’ effort only when it is determined by asymmetric (positive or negative) shocks. These
findings indicate that the well-known negative effect of within-group (symmetric) project correlation on group lending with
joint liability disappears once endogenous effort is taken into account. We also analyse the effects of subsidised lending
(and asymmetric correlation) on the relative convenience (in terms of borrowers’ effort) of the alternative (1) between group
lending and individual lending with notional collateral and (2) among three different market structures of the microfinance
industry. |
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Keywords: | |
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