RATIONING, SPILLOVER, AND INTERLINKING IN CREDIT MARKETS: THE CASE OF RURAL PUNJAB

Publisher Website
Google Scholar
Abstract
A parallel market structure may exhibit extensive rationing in the regulated segment, and hence spillover of unsatisfied demand into the unregulated segment of the market. In the latter segment, the borrower can choose to bundle loan contracts with output marketing through the lender. Using data on Punjabi cultivators, econometric estimation of such a structure yields three principal findings: (i) most borrowers and non-borrowers were rationed in the regulated market; (ii) demand for credit was fairly inelastic with respect to the interest rate; (iii) a contractual provision tying credit to output marketing made informal lenders willing to advance much bigger loans.

This publication has 0 references indexed in Scilit: