Is acting prosocially beneficial for the credit market?
- Publisher: Birkbeck College, University of London
This article argues that behaving prosocially implies more transparent information during the negotiation process of a financial contract and more cooperation among the parties to respect the terms of the contract. For this reason this work considers interest rate on loans and insolvency rate functions of prosocial behaviour along with the traditional socio-economic and financial collaterals. The context of study is Italy and the analysis is developed at a cross-regional level. We collect data from the two reports on “Relatives and Safety Net” produced by the Italian Centre Bureau of Statistics (ISTAT) in 1998 and 2003 and from the reports on “Regional Economics” produced by the Bank of Italy in the same years. A two-period panel model shows two interesting outcomes. Firstly, regions with a higher proportion of prosocial individuals report lower interest rates on loans and insolvency rates. Secondly, when we include the efficiency of legal enforcement, evidence supports the idea that a more efficient legal framework can act as a more reliable transmission mechanism of institutional norms and facilitate the internalisation of social norms.
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