Current Institutional Affiliation
Professor, Economics, Universite de Namur

Award Information

International Dissertation Research Fellowship 2004
Institutional Affiliation (at time of award):
Economics, University of California / Davis
Risk, Wealth and Sectoral Choice in Rural Credit Markets

I am seeking SSRC funding to empirically study the functioning of rural credit markets in Piura, Peru. I will empirically explore several ambiguities which come out of the theoretical literature on credit rationing. These ambiguities result from counteracting effects of wealth on contract terms in contexts of risk and moral hazard. On one hand, increasing wealth should facilitate credit access as wealthier farmers can post more collateral and are less risk averse. On the other hand, the incentive problem (inducing the borrower to work hard) may be more severe for wealthier borrowers. Lenders respond by forcing wealthier borrowers to bear more risk. The relative strength of these opposing effects determines both how well credit markets perform and, critically, for whom they perform well. The research will thus shed light on the degree to which financial liberalization reduces or heightens wealth-based biases in rural credit markets. My empirical strategy combines supply and demand components. I have participated in the collection of demand side data from a panel of 500 rural households which will permit me to examine how credit demand and rationing vary with wealth. These data do not, however, enable me to study how the risk-sharing rules of credit contracts vary across households and types of lenders. To overcome this limitation I will complement the household data with a thorough study of credit supply. I will survey formal and informal lenders throughout Piura. This supply side data collection requires an extended stay in Piura for two reasons. First, I need to identify the different types of rural actors engaged in informal lending. Second, given the sensitive nature of informal lending, I need to build relationships with lenders in order to collect reliable data. An IDRF fellowship would enable me to spend 9 month in Peru to carry out these surveys.