New Economics Papers
on Microfinance
Issue of 2009‒10‒31
two papers chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Corruption in a Model of Vertical Linkage between Formal and Informal Credit Sources and Credit Subsidy Policy By Chaudhuri, Sarbajit; Ghosh Dastidar, Krishnendu
  2. High-Powered Incentives in Developing Country Health Insurance: Evidence from Colombia’s Régimen Subsidiado By Grant Miller; Diana M. Pinto; Marcos Vera-Hernández

  1. By: Chaudhuri, Sarbajit; Ghosh Dastidar, Krishnendu
    Abstract: The present paper develops a model of vertical linkage between the formal and informal credit markets highlighting the presence of corruption in the distribution of formal credit. The existing moneylender, the bank official and the new moneylenders move sequentially and the existing moneylender acts as a Stackelberg leader and unilaterally decides on the informal interest rate. The analysis distinguishes between two different ways of designing a credit subsidy policy. If a credit subsidy policy is undertaken through an increase in the supply of institutional credit it is likely to increase the competitiveness in the informal credit market and lower the informal sector interest rate under reasonable parametric restrictions. Any change in the formal sector interest rate has no effect. An anticorruption measure, on the contrary, may be counterproductive and raise the interest rate in the informal credit market.
    Keywords: formal/informal credit markets; interest rates
    JEL: O17 O16
    Date: 2009–05–15
  2. By: Grant Miller; Diana M. Pinto; Marcos Vera-Hernández
    Abstract: Despite current emphasis on health insurance expansions in developing countries, inefficient consumer incentives for over-use of medical care are an important counterbalancing concern. However, three factors that are more acute in poor countries (credit constraints, principal-agent problems, and positive externalities) result in substantial under-use and misuse as well. This paper studies Colombia’s Régimen Subsidiado, the first major developing country effort to expand insurance in a way that purposefully addresses these inefficiencies. Using a regression discontinuity design, we find that Colombia’s insurance program has provided risk protection while substantially increasing the use of traditionally under-utilized preventive services (with measurable health gains) through high-powered supply-side incentives.
    JEL: I10 O10
    Date: 2009–10

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