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Remarks on Income Contingent Loans: How Effective Can They Be at Mitigating Risk?

Stiglitz, Joseph E.

A well-known principle holds that equity provides better risk sharing opportunities than debt, but that there are greater enforcement problems associated with equity. Income contingent loans (ICL) represent an efficient (low transactions cost) way of implementing equity contracts for human capital.1 The amount the individual repays is dependent on his or her income. While it seems natural to link ICL with investments that increase the value of human capital — most notably education — there is no necessary reason to limit it to such investments.

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Title
Income Contingent Loans: Theory, Practice and Prospects
Publisher
Palgrave Macmillan

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Academic Units
Economics
Published Here
April 15, 2019