We study the effects of usury limits on the market for auto loans and find little evidence of credit rationing. We show instead that loan contracting and the organization of the loan market adjust to facilitate loans to risky borrowers. When usury restrictions bind, auto dealers finance their customers’ purchases and raise the vehicle sales price (and loan amount) relative to the value of the u...

We investigate the misallocation of credit in Japan associated with banks’ evergreening loans, distinguishing between two types of firm distress: (perhaps temporary) financial distress and technical distress, which reflects weak operational capabilities, as indicated by low total factor productivity. We show that previous evidence related to firms’ financial health is problematic...

I examine loan data from Prosper.com—a website which allows borrowers to post loans and for lenders to bid on those loans. The Prosper market somewhat resembles the theoretical model of search, herding, and crowding in a large market described in Berkovich and Tayon (2009). That model predicts that assets with high and low prices have high variance in the difference between price and true value...

Chinese banks suffer from serious financial fragility manifested by high proportions of non-performing loans and low capital-adequacy ratios. A key policy introduced recently by the Chinese government to reduce financial risks is the establishment of four asset management companies (AMCs) for dealing with bad loans. Drawing on the experiences of the Resolution Trust Corporation in the United St...

We estimate Japanese banking inefficiency and the shadow price of problem loans by treating problem loans as a jointly produced undesirable by-product of the loan production process. Our method uses the directional output distance function of Färe et al. [R. Färe, S. Grosskopf, D.-W. Noh, W.L. Weber, Characteristics of a polluting technology: Theory and practice, Journal of Econometrics 126 (20...

This paper uses the most recent wave of a nationally representative dataset to examine the factors associated with elderly homeowners’ decision to obtain reverse mortgage loans. The findings of this study suggest that very few homeowners participated in the reverse mortgage market, and homeowners younger than 67 were less likely to have reverse mortgage loans. However, homeowners who were risk ...

Lenders condition future loans on some index of past performance. Typically, banks condition future loans on repayments of earlier obligations while international organizations condition future loans on the implementation of some policy conditions. We build an agency model that accounts for these tendencies to offer an explanation for why both types of conditionality clause may coexist. The opt...

a r t i c l e i n f o Dynamic incentives, where incentives to repay are generated by granting access to future loans, are one of the methodologies used by microfinance institutions (MFIs). In this paper, I present a model of dynamic incentives where lenders are uncertain over how much borrowers value future loans. Loan terms are determined endoge-nously, and loans become more favorable as the p...

Using detailed data on gifts, loans, and asset sales, this paper investigates how rural Filipino households deal with income and expenditure shocks. We find that shocks have a strong effect on gifts and informal loans, but little effect on sales of livestock and grain. Mutual insurance does not appear to take place at the village level; rather, households receive help primarily through networks...

Does access to credit explain the gap in schooling attainment between children from richer and poorer families? I present new evidence on this important question using two college tuition loans in Chile. Both programs offer loans to students who score above a threshold on the national college admission test, enabling a regression discontinuity design. I find that loan access implies an increase...