Peer-to-Peer Lending, Joint Liability and Financial Inclusion with Altruistic Investors
Aleksander Berentsen and
Marina Markheim ()
MPRA Paper from University Library of Munich, Germany
Peer-to-peer lending platforms are increasingly important alternatives to traditional forms of credit intermediation. These platforms attract projects that appeal to socially motivated investors. There are high hopes that these novel forms of credit intermediation improve ﬁnancial inclusion and provide better terms for borrowers. To study these hopes, we introduce altruistic investors into a peer-to-peer model of credit intermediation where the terms of the loans are determined through bilateral bargaining. We ﬁnd that altruistic investors do not improve ﬁnancial inclusion in the sense that all projects that are ﬁnanced by altruistic investors are also ﬁnanced by rational investors. Altruistic investors oﬀer, however, better borrowing conditions in the sense that the borrowing rates with altruistic investors are always lower in comparison to the ones obtained with rational investors. Furthermore, investors with strong altruistic preferences are willing to ﬁnance projects which generate an expected ﬁnancial loss. We also introduce joint liability contracts and we ﬁnd that they increase borrowing rates and have no eﬀects on the surpluses of borrowers and investors. Finally, for a certain range of parameters the model’s allocation is observationally equivalent to a model with rational investors that have low bargaining power. Outside of this range, the model generates equilibrium allocations that are not incentive feasible in a model with rational investors which is interesting from the point of view of pure bargaining theory.
Keywords: altruistic preferences; ﬁnancial intermediation; ﬁnancial inclusion; peer-to-peer platforms; joint liability (search for similar items in EconPapers)
JEL-codes: D4 G0 O1 (search for similar items in EconPapers)
Date: 2019-07, Revised 2019-07-02
New Economics Papers: this item is included in nep-ban, nep-pay and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:94963
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