Debt enforcement and relational contracting
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"Brown null, Martin [2] ; Serra García, Marta [1]
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[1] Ludwig Maximilian University of Munich
Ludwig Maximilian University of Munich
Kreisfreie Stadt München, Alemania
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[2] University of Saint Gallen
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- Localización: Documents de Treball ( Universitat Autònoma de Barcelona. Departament d'Economia de l'Empresa ), ISSN-e 1988-7736, Nº. 1, 2012
- Idioma: inglés
- Enlaces
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Resumen
We examine how third-party debt enforcement affects the emergence and performance ofrelational contracts in credit markets. We implement an experiment with finitely repeatedcredit relationships in which borrowers can default. In the weak enforcement treatmentdefaulting borrowers can keep their funds invested. In the strong enforcement treatmentdefaulting borrowers have to liquidate their investment. Under weak enforcement fewerrelationships emerge in which loans are extended and repaid. When such relationships doemerge they exhibit a lower credit volume than under strong enforcement. These findingssuggest that relational contracting in credit markets requires a minimum standard of thirdpartydebt enforcement.
