A Model of Pairwise Credit.

A model of credit as a pairwise activity is studied in a random matching model where there are no social sanction mechanisms. The model depicts some prevalent features of credit arrangements. Even though there are no informational asymmetries and the price of credit is determined competitively, there is credit rationing. The credit relationships are also long lasting. The introduction of credit into a barter economy does not necessarily increase the welfare of debtors. Copyright 1995 by The editors of the Scandinavian Journal of Economics.