Joint Liability Lending and the Peer Selection Effect

11 Pages Posted: 7 Dec 2005

See all articles by Shubhashis Gangopadhyay

Shubhashis Gangopadhyay

India Development Foundation; University of Gothenburg; University of Groningen, Faculty of Economics and Business, Students; Indian School of Public Policy

Maitreesh Ghatak

London School of Economics (LSE) - Department of Economics

Robert Lensink

University of Groningen - Department of Economics, Econometrics and Finance; Wageningen UR - Development Economics Group

Abstract

We show that the joint liability lending contracts derived in Ghatak (2000) violate an ex post incentive-compatibility constraint which says that the amount of joint liability cannot exceed the amount of individual liability. We derive and characterise optimal separating joint liability contracts incorporating this constraint.

Suggested Citation

Gangopadhyay, Shubhashis and Ghatak, Maitreesh and Lensink, Robert, Joint Liability Lending and the Peer Selection Effect. Economic Journal, Vol. 115, No. 506, pp. 1005-1015, October 2005. Available at SSRN: https://ssrn.com/abstract=856698 or http://dx.doi.org/10.1111/j.1468-0297.2005.01029.x

Shubhashis Gangopadhyay (Contact Author)

India Development Foundation ( email )

4101 DLF Phase IV
Gurugram, Haryana 122002
India
+91 9910991221 (Phone)

University of Gothenburg

Gothenburg
Sweden

University of Groningen, Faculty of Economics and Business, Students

Postbus 72
9700 AB Groningen
Netherlands

Indian School of Public Policy

Delhi
India

Maitreesh Ghatak

London School of Economics (LSE) - Department of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom
44 20 7852 3568 (Phone)
44 20 7955 6951 (Fax)

HOME PAGE: http://sticerd.lse.ac.uk/dps/adds/ghatak/cv-lse-sept02.pdf

Robert Lensink

University of Groningen - Department of Economics, Econometrics and Finance ( email )

P.O. Box 800
9700 AH Groningen
Netherlands

Wageningen UR - Development Economics Group ( email )

Hollandseweg 1
WAGENINGEN, 6706 KN
Netherlands

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