Author: Francesco Reito, University of Catania, Italy
Abstract:
This paper shows that the positive assortative matching of Ghatak (1999) and Van Tassel (1999) is not a general result and always depends on the distribution of safe and risky types. Some new implications are:
- borrowers may be better off by forming mixed groups.
- a mixed pooling equilibrium is possible when homogeneous pooling equilibria do not exist, and even when the reservation income of borrowers is equal to zero.
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