When Opposites Attract: Is the Assortative Matching Always Positive?

Abstract

This paper shows that the positive assortative matching of Ghatak (1999) and Van Tassel (1999) is not a general result and always depends on the distribution of safe and risky types. Some new implications are: (i) borrowers may be better off by forming mixed groups. (ii) a mixed pooling equilibrium is possible when homogeneous pooling equilibria do not exist, and even when the reservation income of borrowers is equal to zero.joint liability lending; assortative matching; screening