Legal Risks and Social Bonds: How Does Information About Risks Affect the Willingness to Grant a Third-Party Loan Guarantee?

Elisabeth Beckmann, Söhnke Bergmann, Christa Hainz () and Sarah Kiesl-Reiter

No 12022, CESifo Working Paper Series from CESifo

Abstract: Loan guarantees can enhance access to credit, but serving as a private guarantor may also increase financial vulnerability. We examine, through a randomized information experiment in the UK, how providing information about the legal ramifications and risks of loan guarantees affects individuals’ willingness to act as guarantors. We find that providing information about legal risks reduces the willingness to guarantee loans, with stronger effects for larger loan amounts. Social preferences influence individuals’ willingness to act as guarantors. Information about legal ramifications increases the willingness to grant a guarantee among altruists but decreases it among those high in positive reciprocity. While information about the UK default rate reduces willingness, individuals are less likely to update their expectations for someone they know personally, indicating in-group bias.

Keywords: third-party loan guarantees; survey experiment; social preferences; loan default expectations (search for similar items in EconPapers)
JEL-codes: D14 G41 G51 G53 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-dcm, nep-exp and nep-soc
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_12022

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