Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212876 
Year of Publication: 
2017
Series/Report no.: 
BOFIT Discussion Papers No. 13/2017
Publisher: 
Bank of Finland, Institute for Economies in Transition (BOFIT), Helsinki
Abstract: 
This paper considers lending to finance projects in a setting where repayment enforcement appears impossible. The loan was illegal and thus legally unenforceable. Creditors were incapable of applying private coercion to force repayment. Borrowers lacked both collateral and reputation capital. Project cash flows were unobservable. The projects were the acquisition of Imperial administrative posts by scholars in nineteenth century Qing China. The lending mechanism was the "trusted-assistant loan." Our model of trusted-assistant lending shows that it is a renegotiation-proof implementation of efficient state dependent financing. Empirical analysis of officials' diaries and bank records shows that the employment of trusted-assistant lending and the performance of trusted-assistant loans conforms roughly with the model's predictions.
JEL: 
N25
G21
D86
Persistent Identifier of the first edition: 
ISBN: 
978-952-323-183-2
Document Type: 
Working Paper

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