Informal lenders extend credit to the poor more often than formal lenders, because (A) informal lenders do not face transaction costs and can therefore lend at affordable interest rates (B) relative to commercial banks, informal lenders are less risk averse and charge lower interest rates (C) relative to commercial banks, informal lenders can more easily circumvent informational asymmetries (D) None of the above

JNU SIS 2015 Question 41: Asymmetric information

Informal lenders extend credit to the poor more often than formal lenders, because

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Asymmetric information has come up 16 times in 5 exams since 2014.

This question is on Principal-agent problems, signalling and screening, part of Asymmetric information in Microeconomics.

Designing contracts and signals when one side knows more than the other.

TestStop has 5 past-paper questions on this subtopic.