Question: This is an exercise on microcredit as a substitute for collateral. Take the same assumptions as in the previous two exercises on the safe and

This is an exercise on microcredit as a substitute for collateral. Take the same assumptions as in the previous two exercises on the safe and risky projects. Now assume that there are two borrowers, A and B. Assume that the size of the loan is 1 and that the interest rate is r. Also assume that A has limited liability. What is the minimum size of B's liability in case A defaults on his loan, so that B can convince A to choose the safe loan?

Step by Step Solution

★★★★★

3.34 Rating (163 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

In this scenario we have two borrowers A and B and we want to determine the minimum size of Bs liabi... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Development Economics Questions!

Two common examples of activities needed to develop a performance economy are car sharing and electronics take-back (see Box 19.3). Sketch an approximate life cycle system boundary of these...

Take the same assumptions as in the previous exercise on the returns and probabilities associated with the safe and risky projects. Assume that there are monitoring costs C to make sure the borrower...

Water emerges from a fire hose at a speed of 20 m/s and a rate of flow of 50 litres a second. Calculate the force required to hold the hose steady.

Two area hospitals have jointly initiated several planning projects to determine how effectively their emergency facilities can handle disaster-related situations at nearby Tech University. These...

velp hr Exercises 151 4. The government wishes to raise an amount 3/4 in tax revenue from this household. Which tax rate(s) can the government use. Assume that the government is benevolent (that is,...

explained welll Exercise 9.6 (Moderate) In the last step, you will simulate business cycles in the model economy. All you need to know is the capital ki at the beginning of time and the random shocks...

1. From the scenario, cite your forecasting conclusions that support TFC?s decision to expand to the West Coast market. Speculate as to whether or not the agency conflict discussed in the scenario...

Rev.Confirming Pages C H A P T E R 7 Planning, Composing, and Revising Chapter Outline The Ways Good Writers Write Activities in the Composing Process Using Your Time Effectively Brainstorming,...

SEE "DOCUMENT 1" FOR CRITERIA 2 "DOCUMENT 2" FOR CRITERIA 4 You are to write a 3 to 4 page paper following APA rules for the title page, citations and appropriate references within the body of the...

Using Y for yes and N for no, indicate whether each of the following items should be included in cash and cash equivalents on the balance sheet. If an item should not be included in cash and cash...

Chateau Cheval Noir is one of the leading premium wine producers of France, with its fifty-acre vineyard at St. Julien in the Bordeaux region. The owners have wanted to expand their production, but...

The assumption that all investors use the same expected returns and covariance matrix of security returns as inputs in security analysis is defined as .

Mexicos Cada Seis Aos. Mexico was famousor infamousor many years for having two things every six years (cada seis aos in Spanish): a presidential election and a currency devaluation. This was the...

Refer to the discussion of holding a dumbbell in Example 11.4 (Section 11.3). The maximum weight that can be held in this way is limited by the maximum allowable tendon tension T (determined by the...

The Gehr Company is considering the purchase of a new machine tool to replace an obsolete one. The machine being used for the operation has both a book value and a market value of $0; it is in good...

Frank and Sharon have been married for five years. Without Franks knowledge, Sharon has been operating an escort service from the local pub. This years operations were very profitable. In fact, if...

in class NodeSLList Implemntation, how do you solve ? void NodeSLList::SortList(unsigned int order) { } Thanks the NodeSLList class cpp...

Transaction Analysis and Financial Statements Blue Jay Delivery Service is incorporated on January 2 and enters into the following transactions during its first month of operations: January 2: Filed...

Write a Python program to (1) Read the file and find top 10 worst earthquakes and save them to top10-worst.txt file. Note the larger the magnitude, the worse the earthquake. (2) For the top 10 worst...