Capital requirements, screening and interlinked sharecropping and credit contracts

Avishay Braverman, J. Luis Guasch

Research output: Contribution to journalArticlepeer-review

25 Scopus citations

Abstract

This paper provides one more rationale for interlinking credit and tenancy contracts in the context of production loans. In an environment characterized by a heterogeneous labor pool and imperfect information, landlords will have an incentive to avail themselves of screening devices. By linking tenancy and credit contracts a screening device can be implemented. The equilibrium set of contracts is characterized by a variety of interest rates, some of which might be below the market interest rate; the interest rate-principal schedule is downward sloping, with higher ability tenants choosing larger principals at lower interest rates.

Original languageEnglish
Pages (from-to)359-374
Number of pages16
JournalJournal of Development Economics
Volume14
Issue number3
DOIs
StatePublished - 1 Jan 1984
Externally publishedYes

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