Using Repayment Data to Test Across Models of Joint Liability Lending

41 Pages Posted: 3 Apr 2007

See all articles by Christian Ahlin

Christian Ahlin

Vanderbilt University - College of Arts and Science - Department of Economics

Robert M. Townsend

MIT - Department of Economics

Abstract

Theories rationalising joint liability lending are rich in implications for repayment rates. We exploit this fact to test four diverse models. We show that the models repayment implications do not always coincide. For example, higher correlation of output and borrowers ability to act cooperatively can raise or lower repayment, depending on the model. Data from Thai borrowing groups suggest that repayment is affected negatively by the joint liability rate (ceteris paribus) and social ties, and positively by the strength of local sanctions and correlated returns. Further, the relative fit of the adverse selection versus informal sanctions models varies by region.

Suggested Citation

Ahlin, Christian and Townsend, Robert M., Using Repayment Data to Test Across Models of Joint Liability Lending. Economic Journal, Vol. 117, pp. F11-F51, February 2007. Available at SSRN: https://ssrn.com/abstract=976772 or http://dx.doi.org/10.1111/j.1468-0297.2007.02014.x

Christian Ahlin (Contact Author)

Vanderbilt University - College of Arts and Science - Department of Economics ( email )

Box 1819 Station B
Nashville, TN 37235
United States
(615) 322-2482 (Phone)
(615) 343-8495 (Fax)

HOME PAGE: http://people.vanderbilt.edu/~c.ahlin/cv.pdf

Robert M. Townsend

MIT - Department of Economics ( email )

Bldg. E52-252c
50 Memorial Drive
Cambridge, MA 02142
United States
617-452-3722 (Phone)
617-253-1330 (Fax)

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