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Oxford Economic Papers 56 (2004), 331-343
© Oxford University Press 2004; All rights reserved

Product quality, lender liability, and consumer credit

Elisabetta Iossa* and Giuliana Palumbo{dagger}

* Department of Economics and Finance, Brunel University, Middlesex UB8 3PH; and CMPO, University of Bristol; e-mail: Elisabetta.Iossa{at}brunel.ac.uk
{dagger} Research Department of Law and Economics, Bank of Italy, Via Milano 60/g, 00184, Rome, Italy; e-mail: palumbo.giuliana{at}insedia.interbusiness.it

Under ‘linked credit’ (also known as ‘connected lending’), the buyer obtains a loan from a lender with the specific purpose of purchasing a certain product. Credit is arranged directly by the seller, who acts as an intermediary for the finance company. Within this form of financing, the lender often accepts a measure of liability for defective products. We show that ‘connected-lender liability’ can work as a signalling device for the reliability of sellers, so as to alleviate the market failure that arises when sellers are better informed than consumers about the quality of their products.


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 OXF ECON PAPHome page
E. Iossa and G. Palumbo
Over-optimism and lender liability in the consumer credit market
Oxf. Econ. Pap., April 13, 2009; (2009) gpp008v1.
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