UW-Madison UW-Madison

Staff Paper No. 520 - Abstract

An Empirical Investigation of Reputation Loan Size Dynamics in Rural Credit Markets in Honduras

Reka Sundaram-Stukel [rsundara@wisc.edu]
Bradford L. Barham [barham@mailplus.wisc.edu]

Staff Paper No. 520, December 2007, 39p.


This paper examines the role of two types of reputation - borrower credit history and productivity - in disequilibrium supply and demand models of loan size dynamics in formal and informal credit markets. Using panel data on Honduran households, full- and partialinformation regime switching econometric models yield four principal findings: (1) credit contracts in the formal sector are largely collateral driven and not reputation driven; (2) the informal sector credit contracts are borrower reputation based; (3) the informal sector utilizes positive/negative credit histories in both markets to credibly reward/punish borrowers; and (4) technical efficiency has a positive impact in determining loan size in both sectors on the demand and supply side of the market.
Last updated on Tue, Jan 15, 2008 2:17pm