Enhancing capabilities through credit access: Creditworthiness as a signal of trustworthiness under asymmetric information

Leonardo Becchetti and Pierluigi Conzo

Journal of Public Economics, 2011, vol. 95, issue 3-4, 265-278

Abstract: Creditworthiness and trustworthiness are almost synonyms because, under asymmetric information, the act of conferring a loan has the indirect effect of signaling the trustworthiness of the borrower. We test the creditworthiness/trustworthiness nexus in an investment game experiment on a sample of participants/non-participants in a microfinance program in Argentina and find that trustors give significantly more to (and believe they will receive more from) microfinance borrowers. The first- and second-order beliefs of trustees are also consistent with this picture. Our findings then show that MF participants appear more trustworthy and this may help microfinance to work. A related consequence is that, if (and only if) borrower's trustworthiness is not public information, the mere loan provision acts as a reputation enhancing signal increasing the borrower's attractiveness as a business partner. In such case we have a channel through which a private financial intermediary contributes to the provision of a public good like information, thereby reducing the adverse consequences of market failures on the creation of economic value.

Keywords: Field; experiment; Microfinance; Investment; game; Trust; Trustworthiness (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (13)

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Related works:
Journal Article: Enhancing capabilities through credit access: Creditworthiness as a signal of trustworthiness under asymmetric information (2011)
Working Paper: Creditworthiness as a signal of trustworthiness (2010)
Working Paper: Creditworthiness as a signal of trustworthiness: field experiment in microfinance and consequences on causality in impact studies (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:95:y:2011:i:3-4:p:265-278

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