HERE WE PRESENT the likelihood function used to estimate the parameters of the demand model. The model can be thought of as a system of four “standard” equations: (i) a tobit down payment equation (with censoring at the minimum down), (ii) a probit purchase equation, (iii) a tobit repayment equation (with censoring at full payment or at the end of our sample), and (iv) a linear price negotiatio...

∑ Loans are transactions over time, with risk fi Need for insurance fi MH problems Risk: Borrower needs insurance (limited liability), as even loans for good projects cannot be repaid in bad years. But lender cannot provide insurance as he cannot monitor genuine failures from false claims ∫ Problem of enforcement. (Moral Hazard (MH) in repayment). Limited liability induces risk taking behavior ...

This paper unpacks the continuum of social finance institutions (SFIs), ranging from foundations offering pure grants to banks supplying soft loans. The in-between category includes under-researched “quasi-foundations” granting loans requiring partial repayment. We develop a model under which SFIs maximize their contribution arising financing successful projects, budget constraint dictated by f...

We analyze the role of debt in persuading an entrepreneur to pay out cash ows, rather than to divert them. In the Žrst part of the paper we study the optimal debt contract—speciŽcally, the trade-off between the size of the loan and the repayment—under the assumption that some debt contract is optimal. In the second part we consider a more general class of (nondebt) contracts, and derive suffic...

The existing theoretical analysis of micro…nance focuses on the nature of the loan contract such as group liability. We draw attention to the role of missing or imperfect labor market in understanding some of the important ‘second generation’debates in micro…nance. Our analysis helps explain a number puzzles in micro…nance such as (i) high repayment rates with high interest rates, (ii) di¢ cult...