Growing Pains in financial development : institutional weakness and investment efficiency

There is little evidence that the expansion of microfinance has reduced poverty, but is instead increasingly associated with problematic multiple borrowing at high interest rates and high levels of debt and default. We develop a model that rationalizes these outcomes-if entrepreneurs cannot commit to exclusive borrowing from a single lender, expanding financial access by introducing multiple lenders may severely backfire. Capital allocation is distorted away from the most productive uses. Entrepreneurs choose inefficient and limited-growth endeavors. These problems are exacerbated when borrowers have access to more lenders, explaining why increased access to finance does not always improve outcomes.

Department dc:contributor.department

Sloan School of Management.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2017

Authors dc:creator

• Green, Daniel (Daniel Weiss)
• Liu, Ernest Siyuan

Advisor dc:contributor.advisor

• Daron Acemoglu and Jonathan Parker.

• Sloan School of Management.
• Economics.

Statement dc:rights

• MIT theses are protected by copyright. They may be viewed, downloaded, or printed from this source but further reproduction or distribution in any format is prohibited without written permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/113949

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/113949