Risk and insurance in a rural credit market: An empirical investigation in Northern Nigeria

Christopher Udry*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

406 Scopus citations

Abstract

Credit contracts play a direct role in pooling risk between households in northern Nigeria. Repayments owed by borrowers depend on realizations of random shocks by both borrowers and lenders. The paper develops two models of state-contingent loans. The first is a competitive equilibrium in perfectly enforceable contracts. The second permits imperfect information and equilibrium default. Estimates of both models indicate that quantitatively important state-contingent payments are embedded in these loan transactions, but that a fully efficient risk-pooling equilibrium is not achieved. The research is based on a year-long survey in Zaria, Nigeria conducted by the author.

Original languageEnglish (US)
Pages (from-to)495-526
Number of pages32
JournalReview of Economic Studies
Volume61
Issue number3
DOIs
StatePublished - Jul 1994

ASJC Scopus subject areas

  • Economics and Econometrics

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