Author: Eric Van Tassel

Journal of Development Economics (1999)

Abstract

This paper examines joint liability loan contracts as part of a screening mechanism adopted by lenders using group lending schemes. A model

and one-period game are introduced in order to analyze the type of optimal loan contracts that emerge when lenders have less information than

borrowers. It is shown that under imperfect information, lenders may be able to utilize joint liability contracts as a means of screening agent types

by inducing endogenous group formation and self-selection among the borrowers. q1999

JEL classification: G20; O12

G20; O12

Keywords: Group lending; Joint liability; Screening

Group lending; Joint liability; Screening