Research on Government’s Implementing Inclusive Financial Mechanism from the Perspective of Behavior Contract

Deng Xinkai(Business School of Nanjing Normal University)

Abstract

By introducing reciprocal borrowers and lenders, positive social capital formed by reciprocal expectations can ease financing constraints. Information asymmetry has a significant impact on the relationship between reciprocal expectations and financing constraints. Lack of reciprocal expectation is a necessary condition for government intervention. The role of government is to promote the formation and growth of positive social capital, reduce negative social capital, activate favorable reference dependence and avoid adverse reference dependence. Specific measures are: direct investment, subsidy/ taxation, administrative orders, alleviation of information asymmetry in financial markets and moral education. Policy Suggestions: the government should pay attention to fostering reciprocal expectations. The development of Inclusive Finance mainly depends on market forces. An important part of it is the government lender who plays an active role in activating the favorable reference dependence. The government should alleviate the information asymmetry in financial markets, reduces the formation of negative social capital, and pays attention to the two sides and limitation of moral education.

Keywords

Incomplete contract; Inclusive finance; Social capital; Reciprocal expectation; Behavioral contract theory; Reference dependence

References

Shaw E S. Financial deepening in economic development[J]. Economic Journal, 1973, 84 (333): 227.

Sarma M, Pais J. Financial inclusion and development[J]. Journal of international development, 2011, 23(5):613-628.

Beck T, Demirgüç-Kunt A, Honohan P. Access to financial services: Measurement, impact, and policies[J]. The World Bank Research Observer, 2009, 24(1):119-145.

Hannig A, Jansen S. Financial inclusion and financial stability: Current policy issues[R]. ADBI working paper series, 2010.

Myers S C, Majluf N S. Corporate financing and investment decisions when firms have information that investors do not have[J]. Journal of financial economics, 1984, 13(2):187-221.

Coleman J S. Social capital in the creation of human capital[J]. American journal of sociology, 1988, 94:S95-S120.

Burt R S. The contingent value of social capital[M]. Knowledge and social capital. 2000:255-286.

Kahneman D, Tversky A. Prospect Theory: An Analysis of Decision under Risk[J]. Econometrica, 1979, 47(2):263-292.

Hart O, Moore J. Contracts as reference points[J]. The Quarterly Journal of Economics, 2008, 123(1):1-48.

Herweg F, Schmidt K M. Loss aversion and inefficient renegotiation[J]. The Review of Economic Studies, 2014, 82(1):297-332.

Herz H, Taubinsky D. What makes a price fair? An experimental study of transaction experience and endogenous fairness views[J]. Journal of the European Economic Association, 2017, 16(2):316-352.

Hart O. Hold-up, asset ownership, and reference points[J]. The Quarterly Journal of Economics, 2009, 124(1):267-300.

Hart O. Incomplete contracts and control[J]. American Economic Review, 2017, 107(7):1731-52.

Hart O, Holmstrom B. A theory of firm scope[J]. The Quarterly Journal of Economics, 2010, 125(2):483-513.

Fehr E, Zehnder C, Hart O. Contracts, reference points, and competition—behavioral effects of the fundamental transformation[J]. Journal of the European Economic Association, 2009, 7(2-3): 561-572.

Fehr E, Hart O, Zehnder C. Contracts as reference points—experimental evidence[J]. American Economic Review, 2011, 101(2):493-525.

Fehr E, Hart O, Zehnder C. How do informal agreements and revision shape contractual reference points?[J]. Journal of the European Economic Association, 2015, 13(1):120-135.

Erlei M, Reinhold C. To Choose or Not to Choose: Contracts, Reference Points, Reciprocity, and Signaling[R]. TUC Working Papers in Economics, 2012.

Yuan, Qin, Yang. The influence of reciprocity mechanism on the efficiency of incomplete contract[J]. Economic Survey, 2015(4):73-78.

Rabin M. Incorporating fairness into game theory and economics [J] . The American Economic Review, 1993, 83(5) :1281-1302.

Güth W, Schmittberger R, Schwarze B. An experimental analysis of ultimatum bargaining[J]. Journal of economic behavior & organization, 1982, 3(4):367-388.

Forsythe R, Horowitz J L, Savin N E, et al. Fairness in simple bargaining experiments[J]. Games and Economic behavior, 1994, 6(3):347-369.

Yuan, Qin, Yang. Decision-making in incomplete contract: fair preference and the effect of multiple reference points[J]. The Journal of World Economy, 2015, 38(8):168-192.

Herz H, Taubinsky D. What makes a price fair? An experimental study of transaction experience and endogenous fairness views[J]. Journal of the European Economic Association, 2017, 16(2):316-352.

Tirole J. The theory of corporate finance[M]. Princeton University Press, 2010.

Lucas Jr R E. Expectations and the Neutrality of Money[J]. Journal of economic theory, 1972, 4(2):103-124.

DOI: http://dx.doi.org/10.26549/jfr.v3i1.1587