Group Lending with Adverse Selection
14 Pages Posted: 28 Oct 2002
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: 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
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