Barter Credit: Warehouses as a Contracting Technology

Abstract

A large Brazilian agribusiness lender introduces a new contracting technology: grain warehouses. Using runner-up warehouse locations as a control group, I find that lenders' access to these warehouses permits a new debt contract, i.e. a barter credit repayable in grain, increases borrowers' debt capacity and lowers borrowing costs. The effects are stronger when grain price risk is higher, for municipalities with weaker courts, and for financially-constrained borrowers. These findings are primarily consistent with barter credit reducing financial market imperfections by mitigating borrowers' output price risk.

Keywords: Organizational Design, Warehouses, Output Storage, Barter Credit, Price Insurance, Credit Enforcement

JEL Classification: D23, G32, G33, L22, L25