Kanz, Martin2013-01-042013-01-042012-11https://hdl.handle.net/10986/12110This paper studies the impact of a large debt relief program, intended to attenuate investment constraints among highly-indebted households in rural India. It isolates the causal effect of bankruptcy-like debt relief settlements using a natural experiment arising from India's Debt Relief Program for Small and Marginal Farmers -- one of the largest debt relief initiatives in history. The analysis shows that debt relief has a persistent effect on the level of household debt, but does not increase investment and productivity as predicted by theories of debt overhang. Instead, the anticipation of future credit constraints leads to a greater reliance on informal financing, lower investment and a decline in productivity among bailout recipients. The results suggest that one-time settlements may be insufficient to incentivize new investment, but can have significant real effects through their impact on borrower expectations.en-USCC BY 3.0 IGOACCESS TO CREDITACCESS TO FINANCEACCESS TO FORMAL CREDITACCESS TO SAVINGSAGRICULTURAL ACTIVITIESAGRICULTURAL CREDITAGRICULTURAL DEBTAGRICULTURAL LOANSAGRICULTURAL SECTORAMOUNT OF DEBTBAILOUTBAILOUTSBANK ACCOUNTSBANK BRANCHBANK BRANCHESBANK CREDITBANK DEBTBANK FINANCINGBANK LOANBANK LOANSBANKRUPTCYBANKRUPTCY DECISIONBANKRUPTCY LAWSBANKRUPTCY REGULATIONBANKSBENEFICIARIESBENEFICIARYBORROWERBORROWER BEHAVIORBORROWINGCASH PAYMENTSCASH TRANSFERSCENTRAL BANKCHECKSCOLLATERALCOMMERCIAL BANKCOMMERCIAL BANKSCONDITIONAL DEBTCONSUMER BANKRUPTCYCONSUMER CREDITCONSUMPTION EXPENDITURESCOOPERATIVE BANKCOOPERATIVE BANKSCOOPERATIVESCORPORATE BORROWINGCORRUPTIONCREDIT CONSTRAINTSCREDIT CONTRACTCREDIT COOPERATIVECREDIT COOPERATIVESCREDIT CULTURECREDIT EXPANSIONCREDIT MARKETCREDIT MARKETSCREDIT RATIONINGCREDIT RELATIONSHIPCREDIT RELATIONSHIPSCREDITORCREDITOR RIGHTSCREDITORSCREDITWORTHINESSCROP LOANCROP LOANSCROP VALUEDEBTDEBT BURDENDEBT CONTRACTDEBT CONTRACTSDEBT FORGIVENESSDEBT HOLDERSDEBT OVERHANGDEBT RECOVERYDEBT RELIEFDEBT RESTRUCTURINGDEBT SERVICEDEBTORSDEBTSDECLINE IN INVESTMENTDEFAULTERDEFAULTERSDEFAULTSDEPENDENTDEVELOPING COUNTRIESDISBURSEMENTDISCRIMINATIONDUMMY VARIABLEECONOMIC DECISIONSEFFECT OF BANKRUPTCYEFFECT OF DEBTELIGIBILITY CRITERIAELIGIBLE DEBTEMERGING CREDITEMERGING ¸ MARKETSENFORCEABILITYENFORCEABILITY OF DEBT CONTRACTSENFORCEMENT OF LOANENFORCEMENT OF LOAN CONTRACTSEX-ANTE INCENTIVESEXISTING CREDITEXISTING DEBTEXPENDITUREEXPENDITURESEXTERNAL BORROWINGFACE VALUEFARM LOANSFARMERFARMERSFEDERAL RESERVEFINANCIAL ACCESSFINANCIAL INSTRUMENTSFINANCIAL POSITIONFINANCIAL SERVICESFINANCIAL SUPPORTFINANCING REQUIREMENTSFORMAL LENDINGFUTURE CREDITGENDERGOVERNMENT INTERVENTIONSHOUSEHOLD DEBTHOUSEHOLD FINANCEHOUSEHOLD INCOMEHOUSEHOLD INVESTMENTHOUSEHOLD WEALTHHOUSEHOLD WELFAREHOUSEHOLDSHUSBANDIMPACT OF DEBTINCOME SHOCKSINDEBTEDINDEBTED HOUSEHOLDSINDEBTEDNESSINEQUALITYINFORMAL CREDITINFORMAL FINANCINGINFORMAL LENDERSINFORMAL LOANSINFORMAL SECTOR LENDERSINFORMATION ASYMMETRIESINSTITUTIONAL CREDITINSTITUTIONAL LENDERSINSURANCEINTEREST RATEINTEREST RATESINTERNAL AUDITSINTERNAL FINANCINGINTERNATIONAL BANKINTERNATIONAL DEVELOPMENTINVESTMENT BEHAVIORINVESTMENT CHOICEINVESTMENT DECISIONINVESTMENT DECISIONSINVESTMENT LOANSINVESTMENT OPPORTUNITIESINVESTMENT SPENDINGLAND HOLDINGLAND RECORDSLANDOWNERSLARGE DEBTLEGAL REFORMLENDERLENDERSLEVEL OF DEBTLINE OF CREDITLIQUID ASSETSLIQUIDITYLIQUIDITY CONSTRAINTSLOANLOAN AMOUNTSLOAN APPLICATIONSLOAN CATEGORYLOAN CHARACTERISTICSLOAN CONTRACTSLOAN REPAYMENTLOAN SIZELOANS FROM BANKSLOANS FROM FRIENDSLOCAL BANKLOWER-INCOME BORROWERSMARKET DISCIPLINEMARKET DISTORTIONSMARKET FAILURESMICRO-ENTERPRISEMICRO-ENTREPRENEURSMICROCREDITMICROENTERPRISESMICROFINANCEMONEYLENDERSMORAL HAZARDNATIONAL DEBTNEW BANK CREDITOUTSTANDING BALANCEOUTSTANDING DEBTOUTSTANDING LOANSOVERDUE LOANOWNERSHIP STRUCTUREPERSONAL BANKRUPTCYPHYSICAL CAPITALPOLITICAL ECONOMYPOVERTIESPRIVATE CREDITPRODUCTIVE INVESTMENTPRODUCTIVITYPROTECTION OF CREDITORREPAYMENTREPAYMENT DIFFICULTIESREPAYMENT INCENTIVESRESERVE BANKRESIDUAL CLAIMANTSRETURNRETURNSREVOLVING LINE OF CREDITRISK OF DEFAULTRISK OF FRAUDRURAL BANKSRURAL CREDITSAVINGS ACCOUNTSSETTLEMENTSETTLEMENTSSOCIAL BANKINGSOURCE OF INCOMESOURCES OF CREDITSOVEREIGN DEBTSUPPLY OF CREDITTOTAL DEBTTRANSPARENCYURBAN AREASVALUE OF DEBTVILLAGEVILLAGESVOLATILE INCOMESWorld Bank10.1596/1813-9450-6258