We show that debt is sustainable at a competitive equilibrium based solely on the reputation for repayment; that is, even without collateral or legal sanctions available to creditors. In an incomplete asset market, when the rate of interest falls recurrently below the rate of growth of the...

A model of the financial market is evaluated that consists of competing credit institutions (local lenders and financial intermediaries) to determine risk and intermediation effects on the financing obtained by entrepreneurs. Local lenders are considered to be principals with respect to the...