EconPapers    
Economics at your fingertips  
 

Corruption in a Model of Vertical Linkage between Formal and Informal Credit Sources and Credit Subsidy Policy

Sarbajit Chaudhuri () and Krishnendu Dastidar ()

MPRA Paper from University Library of Munich, Germany

Abstract: The present paper develops a model of vertical linkage between the formal and informal credit markets highlighting the presence of corruption in the distribution of formal credit. The existing moneylender, the bank official and the new moneylenders move sequentially and the existing moneylender acts as a Stackelberg leader and unilaterally decides on the informal interest rate. The analysis distinguishes between two different ways of designing a credit subsidy policy. If a credit subsidy policy is undertaken through an increase in the supply of institutional credit it is likely to increase the competitiveness in the informal credit market and lower the informal sector interest rate under reasonable parametric restrictions. Any change in the formal sector interest rate has no effect. An anticorruption measure, on the contrary, may be counterproductive and raise the interest rate in the informal credit market.

Keywords: formal/informal credit markets; interest rates (search for similar items in EconPapers)
JEL-codes: O17 O16 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mfd and nep-mic
Date: 2009-05-15
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/18006/1/MPRA_paper_18006.pdf original version (application/pdf)

Related works:
Journal Article: Corruption in a model of vertical linkage between formal and informal credit sources and credit subsidy policy (2011) Downloads
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:pra:mprapa:18006

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().

 
Page updated 2019-12-21
Handle: RePEc:pra:mprapa:18006