Financial trust in social economic network and credit risk

Paper models lender's decision based on project riskiness, trust from borrower's socioeconomic network, and social cost of default for the borrower. The paper suggests a methodology to estimate aggregate level of trustworthiness of borrower in socio-economic network. Our model links the social cost of default to credit default. A relatively safer project executed by a borrower with lower social cost of default is likely to be a willful defaulter. Similarly, relatively safer project executed by a borrower with high social cost of default is likely to pay-back the loan.