Trust and Law in Credit Markets

Koji Asano

Economica, 2022, vol. 89, issue 354, 332-361

Abstract: This study examines the coevolution of trust and legal institutions in a model of competitive credit markets plagued by asymmetric information. When entrepreneurs’ relative payoff to productive activities versus cheating is private information, dishonest ones, who intend to cheat, can enter credit markets and be cross‐subsidized by honest ones, who engage in productive activities. To exploit this benefit, dishonest entrepreneurs demand weak legal enforcement through the political process. This rent‐seeking behaviour interacts with the formation of trust, generating an underdevelopment trap with weak enforcement and distrust. Technological advancement may encourage entrepreneurs’ rent‐seeking and aggravate distrust.

Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://doi.org/10.1111/ecca.12400

Related works:
Working Paper: Trust and Law in Credit Markets (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:econom:v:89:y:2022:i:354:p:332-361

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0013-0427

Access Statistics for this article

Economica is currently edited by Frank Cowell, Tore Ellingsen and Alan Manning

More articles in Economica from London School of Economics and Political Science Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().