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Competition and Altruism in Microcredit Markets

Paolo Casini ()

No 2008_037, Working Papers ECARES from ULB -- Universite Libre de Bruxelles

Abstract: We analyze the effects of entry in a previously monopolistic microcredit market characterized by asymmetric information and by institutions that offer only one type of contract. We consider different behavioral assumptions concerning the Incumbent and study their influence on equilibrium predictions. We show that competition leads to contract differentiation but can make borrowers worse off. Moreover, the screening process creates a previously unexplored source of rationing. We show that if the incumbent institution is altruistic, rationing is reduced and that this can positively affect the competitor's profit.

Keywords: Microfinance; Competition; Altruism; Differentiation; Credit Rationing (search for similar items in EconPapers)
JEL-codes: G21 L13 L31 O16 (search for similar items in EconPapers)
Pages: 40 p.
Date: 2008
New Economics Papers: this item is included in nep-com, nep-cta, nep-dev and nep-mfd
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