Abstract:In this paper we analyze the role of peer solidarity in fostering productive investments in the context of micro…nance. When there is asymmetric information between lenders and borrowers and loans are not collateralized, borrowers may divert loans towards current consumption rather than investing in production. We assume that solidarity is accorded by a network of individuals close enough to the borrower (peers) so as to share private information about hidden e¤ort in the productive project. The model shows th… Show more
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