Product quality, lender liability, and consumer credit

Elisabetta Iossa and Giuliana Palumbo ()

Oxford Economic Papers, 2004, vol. 56, issue 2, 331-343

Abstract: Under 'linked credit' (also known as 'connected lending'), the buyer obtains a loan from a lender with the specific purpose of purchasing a certain product. Credit is arranged directly by the seller, who acts as an intermediary for the finance company. Within this form of financing, the lender often accepts a measure of liability for defective products. We show that 'connected-lender liability' can work as a signalling device for the reliability of sellers, so as to alleviate the market failure that arises when sellers are better informed than consumers about the quality of their products. Copyright 2004, Oxford University Press.

Date: 2004
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