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June 1999 - When will a landlord prefer to supply both land and credit to a tenant rather than allow the lender to borrow from a separate moneylender? The paper shows that if tenancy contracts are obtained prior to contracting with the moneylender, and the tenant has limited liability, interlinked deals will predominate over the alternative situation where the landlord and the moneylender act as noncooperative principals. Basu, Bell, and Bose analyze the example of a landlord, a moneylender, and a tenant (the landlord having access to finance on the same terms as the moneylender). It is natural to assume that the landlord has first claim on the tenant's output (as a rule, if they live in the same village, he may have some say in when the crop is harvested). The moneylender is more of an outsider, not well placed to exercise such a claim. A landless, assetless tenant will typically not get a loan unless he has a tenancy. Without interlinkage, the landlord is likely to move first. In the noncooperative sequential game where the landlord is the first mover and also enjoys seniority of claims if the tenant defaults, interlinkage is superior, even if contracts are nonlinear - a result unchanged with the incorporation of moral hazard. The main result is that if a passive principal - one whose decisions are limited to exercising his property rights to determine his share of returns - is the first mover, allocative efficiency is impaired unless his equilibrium payoffs are uniform across states of nature. The limited liability of the tenant creates the strict superiority of interlinkage by making uniform rents nonoptimal when, with noncollusive principals, the landlord (the passive principal) is the first mover. A change in seniority of claims from the first to the second mover (the moneylender) further strengthens this result. But uniform payoffs for the first mover are not essential for allocative efficiency if he is the only principal with a continuously variable instrument of control. So, the main result is sensitive to changes in the order of play but not to changes in the priority of claims. This paper - a product of the Office of the Senior Vice President and Chief Economist, Development Economics - is part of a larger effort in the Bank to understand the institutional structure of rural markets and its welfare implications. The authors may be contacted at kbasu@worldbank.org, clive.bell@urz.uni-heidelberg.de, or psbose@cc.memphis.edu.

Amount Of Cred Borrower --- Contract Law --- Contracts --- Contractual Obligations --- Credit Contract --- Debt Markets --- Default --- Discount --- Discount Rates --- Economic Theory and Research --- Finance --- Finance and Financial Sector Development --- Financial Literacy --- Instrument --- Instruments --- Labor Policies --- Law and Development --- Limited Liability --- Loan --- Loan Contracts --- Macroeconomics and Economic Growth --- Moneylender --- Moral Hazard --- Option --- Risk Aversion --- Risk Neutral --- Social Protections and Labor --- Unlimited Liability

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The Promise and Peril of Credit takes an incisive look at pivotal episodes in the West's centuries-long struggle to define the place of private finance in the social and political order. It does so through the lens of a persistent legend about Jews and money that reflected the anxieties surrounding the rise of impersonal credit markets. By the close of the Middle Ages, new and sophisticated credit instruments made it easier for European merchants to move funds across the globe. Bills of exchange were by far the most arcane of these financial innovations. Intangible and written in a cryptic language, they fueled world trade but also lured naive investors into risky businesses. Francesca Trivellato recounts how the invention of these abstruse credit contracts was falsely attributed to Jews, and how this story gave voice to deep-seated fears about the unseen perils of the new paper economy. She locates the legend's earliest version in a seventeenth-century handbook on maritime law and traces its legacy all the way to the work of the founders of modern social theory--from Marx to Weber and Sombart. Deftly weaving together economic, legal, social, cultural, and intellectual history, Trivellato vividly describes how Christian writers drew on the story to define and redefine what constituted the proper boundaries of credit in a modern world increasingly dominated by finance.

History of Europe --- anno 1600-1699 --- anno 1700-1799 --- anno 1800-1899 --- anno 1900-1909 --- anno 1910-1919 --- Credit --- Contracts --- Bills of exchange --- Marine insurance --- Usury --- Jewish capitalists and financiers --- Jewish businesspeople --- Jews --- Contracts. --- Credit. --- Jews. --- Handel --- Juden --- Kredit --- Legende --- Literatur --- Wechsel --- Kreditrisiko --- History. --- Public opinion --- Economic conditions. --- Europe --- Europe. --- Europa --- Commerce --- Bordeaux. --- Catholic France. --- Catholic theologians. --- Christian merchants. --- Church doctrines. --- England. --- European commercial society. --- European private finance. --- French commercial society. --- Holy Roman Empire. --- Italian refugees. --- Jacque Savary. --- Jewish emancipation. --- Jewish history. --- Jewish moneylenders. --- Jewish usury. --- Karl Marx. --- Lombardy. --- Max Weber. --- Montesquieu. --- New Christians. --- Old Regime Europe. --- United Provinces. --- Werner Sombart. --- Western capitalism. --- ars mercatoria. --- banknotes. --- bills of exchange. --- commerce. --- commercial credit. --- commercialization. --- credit contract. --- credit contracts. --- credit instruments. --- credit market. --- crypto-Judaism. --- economic behaviors. --- equality. --- financial contracts. --- financial credit. --- long-distance trade. --- marine insurance policies. --- marine insurance. --- maritime laws. --- marketplace. --- merchant-bankers. --- modern capitalism. --- modern social thought. --- money. --- overseas commerce. --- paper economy. --- paper money. --- pawnbroking. --- private finance. --- private trade. --- usury. --- world trade. --- Étienne Cleirac.