Rationality, Market and Rural Credit: Case of Fude Association

Kaixiang Peng

Global COE Hi-Stat Discussion Paper Series from Institute of Economic Research, Hitotsubashi University

Abstract: Researches about traditional rural credit always claimed it was composed by reciprocal credit between villagers and usury from outside societies. Contrarily, the credit operation of Fude Association in a village of Taiwan shows that there is no clear classification between reciprocal credit and usury, and the divergence in interest rates and loan sizes can be explained by selections in an optimizing model. Meanwhile, this paper finds some special deviations from rational decision, mainly according to the calculation cost. However, such deviations decreased when marketization developed and the benefit of rational calculation increased, which illustrates the internal consistency between market economy and rationality.

Date: 2012-11
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