Is joint liability lending more efficient than individual lending? : a theoretical and experimental analysis.

Abstract

This thesis aims to compare loan repayment decisions under individual and joint liability lending schemes using game theoretical models and laboratory experiments. We find that even under the most unfavourable circumstances joint liability still gains significantly higher repayment rates than individual liability. We also examine an alternate joint liability scheme that reduces transaction costs We find that there are potential benefits from adopting this scheme, as it does not undermine the high repayment rates achieved under the traditional scheme. Lastly, we find that reducing the cost of repayment, allowing for communication and monitoring can improve the repayment rates.