Collusion and Group Lending with Adverse Selection
Jean-Jacques Laffont
No 147, Development Working Papers from Centro Studi Luca d'Agliano, University of Milano
Abstract:
In an environment with correlated returns, this paper characterizes optimal lending contracts when the bank faces adverse selection and borrowers have limited liability. Group lending contracts are shown to be dominated by revelation mech- anisms which do not use the ex post observability of the partners\' performances. However, when collusion between borrowers under complete information is allowed, group lending contracts are optimal in the class of simple revelation mechanisms (which elicit only the borrower\'s own private information) and remain useful with extended revelation mechanisms.
Keywords: Group lending; adverse selection; collusion; development (search for similar items in EconPapers)
JEL-codes: D8 G2 O12 O17 (search for similar items in EconPapers)
Date: 2000-11-01
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Citations: View citations in EconPapers (35)
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Related works:
Journal Article: Collusion and group lending with adverse selection (2003)
Working Paper: Collusion and Group Lending with Adverse Selection (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:csl:devewp:147
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