The Mechanism Of Social Capital In Peasant Household Borrowing And Its Statistical Analysis

The adverse selection and moral hazard problems in rural credit market resulting from information asymmetry is considered to be an important cause of peasant household’s difficulties in borrowing. For a long time, researchers in rural financial theory as well as policy makers and practitioners have been trying to explore those instruments, strategies or mechanism being able to reduce asymmetric information, in order to realize the Pareto improvement of rural credit market, but the practice effect is not very obvious. The research angles of these theories are often limited to the theoretical paradigm of traditional economics, which may limit our understanding of this problem. As social scientists have pointed out, economists are accustomed to applying the research paradigm of new classical economics, putting excessive emphasis on the economic attribute of trading rather than social attribute which means, paying insufficient attention to social structure. The interactive behavior of people is not rational game and there is social exchange behind economic exchange between people. In the dialogue between sociology and economics, social capital is undoubtedly the hottest interdisciplinary theory in the theoretical cycle in the the past thirty years. Although the concept of social capital was first put forward by sociologists, and even so far, there has not been a unified theoretical system on its concept, it is still widely applied to the analysis of economic problems. More And more scholars focus on the effect of social capital on credit, and the research topics are related to some issues like social capital and credit constraints, lending and borrowing behavior, as well as some organization or project like Rotating Saving And Credit Association, Moneylender, micro credit. The basic conclusion is that social capital plays an important role in peasant household borrowing. From such a perspective, this paper tries to make systemic researches on the mechanism of social capital affecting peasant household borrowing on the basis of summarizing the existing research, so as to explore how social capital alleviate adverse selection and moral hazard problems in peasant household borrowing, and hoping to understanding the behavior of peasant household borrowing from a new angle of view and then providing a new perspective for solving the problem of peasant household borrowing.This paper proceeds from literature review, theoretical analysis and statistical analysis, and then to the case study step by step. In the part of literature review, it summarizes and analyzes the literature concerning the concept of social capital and the mechanism of social capital affecting peasant household credit, and defines the concept of peasant household’s social capital according to Putnam’s definition of social capital on the basis of related research results. In the part of theoretical analysis, it firstly put forward research hypothesis on the basis of social capital characterics and related literature research conclusion, and analyzes the signal transmission function of social capital by referencing signal transmission model of the Labour market, analyzing how lenders’(banks) make lending decisions by identifying borrowers’(peasant households) levels of social capital to overcome the adverse selection problem in peasant household borrowing; Then, by using the method of literature review of social capital mortgage, it analyzes how social capital mortgage improve the society optimal size of the loan in peasant households credit market, and become borrowers (peasant households) repayment incentive constraints. In the part of statistical analysis, it uses the logit binary choice model to make empirical analysis of peasant households’ social capital availability of loans as well as the behavior of peasant household repayment, and explains the mechanism social capital affecting peasant household based on the the results of empirical analysis. The part of case study selects three typical cases, i.e. "rural mutual funds", "farmers’ professional co-operatives" and "mutual funds behavior of the members of farmers’ professional co-operatives", through which it analyzes the structure characteristics of social network that peasant households are embedded in, and also analyzes the mechanism of trust, reputation and regulation affecting peasant household credit as well as the mutual funds behavior. Considering the above empirical analysis tends to static perspective, finally, it also explores the characteristics of structural change of peasant household’s social capital and analyzes the affecting mechanism of social capital behind some new modes of peasant household credit such as community banks, new type cooperative finance, agricultural supply chain financing and rural internet finance.The mechanism of social capital affecting peasant household credit is mainly manifested in three aspects:trust mechanism, reputation mechanism and social punishment mechanism. Trust as an important content of social capital can effectively overcome the breach of contract and opportunistic behavior, save the cost of contract management and execution. Reputation investment is sunk cost, and the higher sunk cost is, the higher the opportunity cost of losing reputation will be and the greater damage it will cause. The function of reputation, therefore, is to overcome the moral hazard in the deal and restrict opportunistic behavior. The existence of social norms changes the game domain of participants. The game between people is an associated game, which is no longer an independent game but nested game. Those violate social norms will be expelled by other members of organization and suffered from the pressure of social exclusion, therefore restraining opportunism behavior in trading, and promoting the generation of cooperation. The conditions that the social capital effect works are expressed from three aspects:effective information transmission, effective punishment for default behavior, and the repeatability and relevance of trading. Effective information transmission is not only a key condition of social capital effect, but also an important basis for the formation of social capital. The specificity of social capital enables community punishment to be executable, and the low cost of executing community punishment guarantees that the threat of social punishment is believable. Repeated game or associated game is not only essential for the formation of social capital, but also for the action of social capital effect. The more frequently game participants trade, the more effective trade information will transmit and the more binding social punishment will be. Social capital has the property of structural change, and marketization, formal institution and Internet technology can make changes in the structure of social capital, which lead to important structural changes in trust relationship, social norms and social networks. So, during different periods and under different external environment its form of expression should be explored according to the essential attribute of social capital. the study found that the social capital behind those new modes of peasant household credit, such as community banks, cooperative finance, agricultural supply chain financing and rural internet finance, share the same logic.