EconPapers    
Economics at your fingertips  
 

Trust and Law in Credit Markets

Koji Asano

MPRA Paper from University Library of Munich, Germany

Abstract: This study examines the coevolution of trust and legal institutions in a model of competitive credit markets plagued by asymmetric information. When entrepreneurs' relative payoff to productive activities versus cheating is private information, uncivic ones, who intend to cheat, can enter credit markets and be cross-subsidized by civic ones, who engage in productive activities. To exploit this benefit, uncivic entrepreneurs demand weak legal enforcement through the political process. This rent-seeking behavior interacts with the formation of trust, generating an underdevelopment trap with weak enforcement and distrust. Technological advancement may encourage entrepreneurs' rent-seeking and aggravate distrust.

Keywords: culture; institutions; financial development; adverse selection (search for similar items in EconPapers)
JEL-codes: O10 O16 Z13 (search for similar items in EconPapers)
Date: 2018-12-13
New Economics Papers: this item is included in nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/90482/1/MPRA_paper_90482.pdf original version (application/pdf)

Related works:
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:90482

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 2022-06-22
Handle: RePEc:pra:mprapa:90482