A MODEL OF PAIRWISE CREDIT

A model of credit as a pairwise activity is studied in a random matchi ng model where there are no social sanction mechanisms. The model depi cts some prevalent features of credit arrangements. Even though there are no informational asymmetries and the price of credit is determined competitively, there is credit rationing. The credit relationships ar e also longlasting. The introduction of credit into a barter economy d oes not necessarily increase the welfare of debtors.