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The Role of Group Size and Correlated Project Outcomes in Group Lending

Markheim, Marina. (2017) The Role of Group Size and Correlated Project Outcomes in Group Lending. Theoretical Economics Letters, 7 (5). pp. 1189-1200.

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Official URL: https://edoc.unibas.ch/87878/

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Abstract

This paper analyzes contract efficiency with regard to correlated project realization and the size of the borrowers in group lending. Firstly, I show that under the standard assumption of independent project payoffs, the expected group cost of default decreases with group size. Secondly, I show that small groups can also optimize group efficiency if individual payoffs and credit risks are correlated. The results outline that social cost minimization occurs due to a common interest in forming optimal borrower groups between lenders and borrowers.
Faculties and Departments:06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften
UniBasel Contributors:Markheim, Marina
Item Type:Article, refereed
Article Subtype:Research Article
Publisher:Scientific Research Publishing
ISSN:2162-2078
e-ISSN:2162-2086
Note:Publication type according to Uni Basel Research Database: Journal article
Language:English
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Last Modified:24 Oct 2022 13:39
Deposited On:24 Oct 2022 13:39

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