Group Lending with Adverse Selection

14 Pages Posted: 28 Oct 2002

See all articles by Jean-Jacques Laffont

Jean-Jacques Laffont

University of Southern California - Department of Economics (Deceased)

Tchetche N'Guessan

Université de Cocody

Date Written: 2002

Abstract

We focus on adverse selection as a foundation of group lending. In a simple static model we show that there is no collateral effect if borrowers do not know each other. If the borrowers know each other, group lending implements efficient lending. However, it is not robust to collusive behavior, when transfers are allowed between colluding partners. Finally, we characterize the optimal collusion-proof group contract.

Suggested Citation

Laffont, Jean-Jacques and N'Guessan, Tchetche, Group Lending with Adverse Selection (2002). Available at SSRN: https://ssrn.com/abstract=340581 or http://dx.doi.org/10.2139/ssrn.340581

Jean-Jacques Laffont (Contact Author)

University of Southern California - Department of Economics (Deceased)

Tchetche N'Guessan

Université de Cocody

Boulevard Latrill
Abidjan, BP V43
Ivory Coast (Cote D'ivoire)
(225) 20-31-50-08 (Phone)

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