Formal credit, corruption and the informal credit market in agriculture: a theoretical analysis

Gupta, M.R. and Chaudhuri, S. (1997) Formal credit, corruption and the informal credit market in agriculture: a theoretical analysis. Economica, 64 (254). pp. 331-343.

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Abstract

The paper presents a theory of interest rate determination on informal credit in backward agriculture when there is a market for formal credit. The farmer has to bribe the official of the formal credit agency in order to get formal credit. The official and the moneylender play a non-cooperative game in choosing the amount of formal credit and the informal interest rate, respectively. The informal-sector interest rate and the effective formal-sector interest rate (incorporating the bribe) are equal in equilibrium. A reduction in the formal interest rate and/or an increase in the price of the product may lead to an increase in the equilibrium bribing rate and the informal interest rate when the formal credit and the informal credit are complementary to each other

Item Type: Article
Author Affiliation: Jadavpur University, Calcutta
Subjects: Social Sciences > Agricultural Economics
Divisions: Other Crops
Depositing User: Ms K Syamalamba
Date Deposited: 28 Oct 2013 07:56
Last Modified: 28 Oct 2013 07:56
Official URL: http://dx.doi.org/10.1111/1468-0335.00081
URI: http://eprints.icrisat.ac.in/id/eprint/12043

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