The ex ante theory of collateral states that better informed lenders, such as informal lenders, rely less on collateral …. We test this by contrasting the use of collateral between formal and informal lenders in the same market. Indeed, formal … lenders rely more often on collateral, controlling for conventional determinants of collateral. Moreover, better information …

to smooth consumption over time and because they provide collateral and liquidity services. We characterize a recursive … and contemporaneous costs due to lost collateral and liquidity are essential to generate these empirically plausible …