Contracting without contracting institutions: The trusted assistant loan in 19th century China

Meng Miao, Guanjie Niu and Thomas Noe

Journal of Financial Economics, 2021, vol. 140, issue 3, 987-1007

Abstract: This paper documents the emergence of a large bank loan market in the absence of contracting institutions: the trusted assistant loan market in 19th century China. These loans were legally unenforceable, one-shot loans to poor scholars that funded the costs of assuming lucrative administrative appointments offering ample opportunities for corruption. The trusted assistant loan’s distinguishing feature was a legally unenforceable stipulation that the borrower incorporate an agent of the creditor into his administrative cadre. We model the enforcement of these loans through expertise leverage and test the model’s predictions using data from officials’ diaries and a bank loan book.

Keywords: Contracting institutions; Creditor rights; Third-party enforcement; Chinese banking (search for similar items in EconPapers)
JEL-codes: D86 G21 O16 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:140:y:2021:i:3:p:987-1007

DOI: 10.1016/j.jfineco.2021.02.005

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