Enhancing capabilities through credit access: Creditworthiness as a signal of trustworthiness under asymmetric information
Creditworthiness and trustworthiness are almost synonyms because, under asymmetric information, the act of conferring a loan has the indirect effect of signaling the trustworthiness of the borrower. We test the creditworthiness/trustworthiness nexus in an investment game experiment on a sample of participants/non-participants in a microfinance program in Argentina and find that trustors give significantly more to (and believe they will receive more from) microfinance borrowers. The first- and second-order beliefs of trustees are also consistent with this picture. Our findings then show that MF participants appear more trustworthy and this may help microfinance to work. A related consequence is that, if (and only if) borrower's trustworthiness is not public information, the mere loan provision acts as a reputation enhancing signal increasing the borrower's attractiveness as a business partner. In such case we have a channel through which a private financial intermediary contributes to the provision of a public good like information, thereby reducing the adverse consequences of market failures on the creation of economic value.
Year of publication: |
2011
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Authors: | Becchetti, Leonardo ; Conzo, Pierluigi |
Published in: |
Journal of Public Economics. - Elsevier, ISSN 0047-2727. - Vol. 95.2011, 3-4, p. 265-278
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Publisher: |
Elsevier |
Keywords: | Field experiment Microfinance Investment game Trust Trustworthiness |
Saved in:
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