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SSRN
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Growing Pains in Financial Development: Institutional Weakness and Investment Efficiency

SSRN Electronic Journal
2019
  • 1
    Citations
  • 4,605
    Usage
  • 13
    Captures
  • 0
    Mentions
  • 0
    Social Media
Metric Options:   Counts1 Year3 Year

Metrics Details

  • Citations
    1
    • Citation Indexes
      1
  • Usage
    4,605
    • Abstract Views
      3,871
    • Downloads
      734
  • Captures
    13
  • Ratings
    • Download Rank
      70,273

Article Description

Multiple borrowing—a borrower obtains overlapping loans from multiple lenders—is a common phenomenon in many credit markets. We build a highly tractable, dynamic model of multiple borrowing and show that, because overlapping creditors may impose default externalities on each other, expanding financial access by introducing more lenders may severely backfire. Capital allocation is distorted away from the most productive uses. Entrepreneurs choose inefficient endeavors with low returns-to-scale. These problems are exacerbated when investments become more pledgeable or when borrowers have access to more lenders, explaining why increased access to finance does not always improve outcomes.

Bibliographic Details

Daniel Green; Ernest Liu

Elsevier BV

Commitment; Multiple Borrowing; Common Agency; Microfinance; Investment; Misallocation

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