Joint Liability and Peer Monitoring under Group Lending

Yeon-Koo Che
<span title="2002-01-03">2002</span> <i title="Walter de Gruyter GmbH"> <a target="_blank" rel="noopener" href="https://fatcat.wiki/container/xnwy3vhj2vhxncjxpfl7x372ma" style="color: black;">Contributions to Theoretical Economics</a> </i> &nbsp;
This paper studies an incentive rationale for the use of group lending as a method of financing liquidity-constrained entrepreneurs. The joint liability feature associated with group lending lowers the liquidity risk of default but creates a free-riding problem. In the static setting, the free-riding problem dominates the liquidity risk effect under a plausible condition, thus making group lending unattractive. When the projects are repeated infinitely many times, however, the joint liability
more &raquo; ... ature provides the group members with a credible means of exercising peer sanction, which can make the group lending attractive, relative to individual lending. JEL Numbers: C72, D80, G32 and L14.
<span class="external-identifiers"> <a target="_blank" rel="external noopener noreferrer" href="https://doi.org/10.2202/1534-5971.1016">doi:10.2202/1534-5971.1016</a> <a target="_blank" rel="external noopener" href="https://fatcat.wiki/release/bxokbqv4hjd6pjxrmxcbk6bkye">fatcat:bxokbqv4hjd6pjxrmxcbk6bkye</a> </span>
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