The present paper develops a model of vertical linkage between the formal and informal credit markets highlighting the presence of corruption in the distribution of formal credit. The existing moneylender, the bank official and the new moneylenders move sequentially and the existing moneylender...

We consider a two good world where an individual i with income mi has utility function u (x, y), where x ? [0, ?) and y ? {0, 1}. We first derive the valuation (maximum price that he is willing to pay for the object) for good y as a function of his income. Then we consider the following problem....