| Item Type |
Monograph
(Working Paper)
|
| Abstract |
We report the results of a laboratory experiment which examines the impact of pre-contractual communication in person-to-person lending. We show that potential hidden action undermines the positive effect of communication on repayment behavior and credit provision. When strategic defaults by borrowers are revealed to lenders, pre-contractual communication reduces strategic default and increases credit provision. When strategic defaults are hidden behind a veil of uncertainty, we find a substantially weaker impact of communication. Borrowers are more likely to renege on repayment promises when they can hide opportunistic behavior from lenders. These findings have important implications for the design of lending relationships and procedures: Pre-contractual communication and post-contractual monitoring go hand in hand. |
| Authors |
Brown, Martin; Schmitz, Jan & Zehnder, Christian |
| Language |
English |
| Keywords |
Strategic Default, Communication, Trust Game |
| Subjects |
economics
finance |
| HSG Classification |
contribution to scientific community |
| HSG Profile Area |
SOF - System-wide Risk in the Financial System |
| Date |
2018 |
| Publisher |
SoF-HSG |
| Series Name |
School of Finance Working Paper Series |
| Volume |
2018 |
| Number |
2018/19 |
| Number of Pages |
108 |
| Contact Email Address |
martin.brown@unisg.ch |
| Depositing User |
Beatrix Kobelt-Glock
|
| Date Deposited |
18 Sep 2018 07:36 |
| Last Modified |
20 Jul 2022 17:36 |
| URI: |
https://www.alexandria.unisg.ch/publications/255016 |
Communication, Credit Provision and Loan Repayment:: Evidence from a Person-to-Person Lending Experiment
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