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Publications
Publications
  • February 2021
  • Article
  • Journal of Financial Economics

A Dynamic Theory of Multiple Borrowing

By: Daniel Green and Ernest Liu
  • Format:Print
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Abstract

Multiple borrowing—a borrower obtains overlapping loans from multiple lenders—is a common phenomenon in many credit markets. We build a highly tractable, dynamic model of multiple borrowing and show that, because overlapping creditors may impose default externalities on each other, expanding financial access by introducing more lenders may severely backfire. Capital allocation is distorted away from the most productive uses. Entrepreneurs choose inefficient endeavors with low returns-to-scale. These problems are exacerbated when investments become more pledgeable or when borrowers have access to more lenders, explaining why increased access to finance does not always improve outcomes.

Keywords

Commitment; Multiple Borrowing; Common Agency; Misallocation; Microfinance; Investment; Mathematical Methods

Citation

Green, Daniel, and Ernest Liu. "A Dynamic Theory of Multiple Borrowing." Journal of Financial Economics 139, no. 2 (February 2021): 389–404.
  • SSRN
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About The Author

Daniel W. Green

Finance
→More Publications

More from the Authors

    • November 2020
    • American Economic Journal: Economic Policy

    Accelerator or Brake? Cash for Clunkers, Household Liquidity, and Aggregate Demand

    By: Daniel Green, Brian Melzer, Jonathan Parker and Arcenis Rojas
    • October 2020 (Revised January 2021)
    • Faculty Research

    Divesting Harvard's Endowment

    By: Daniel Green, Luis M. Viceira and Holly Fetter
    • October 2020
    • Faculty Research

    A Case in Point: Shared Home Equity

    By: Daniel Green, Boris Vallee, Sid Beaumaster and Yang (Dolly) Yu
More from the Authors
  • Accelerator or Brake? Cash for Clunkers, Household Liquidity, and Aggregate Demand By: Daniel Green, Brian Melzer, Jonathan Parker and Arcenis Rojas
  • Divesting Harvard's Endowment By: Daniel Green, Luis M. Viceira and Holly Fetter
  • A Case in Point: Shared Home Equity By: Daniel Green, Boris Vallee, Sid Beaumaster and Yang (Dolly) Yu
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