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Can Social Cohesion Be Harnessed to Repair Market Failures? Evidence from Group Lending in Guatemala

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Author Info
Wydick, Bruce
Abstract

The success of group lending in developing countries has been attributed to the ability of the institution to mitigate asymmetric information problems in credit markets. Previous research has offered a number of explanations for this phenomenon: social ties between borrowing group members, internal group pressure to repay loans, and peer monitoring. This research presents empirical tests on borrowing group data from Guatemala which indicate that peer monitoring significantly effects borrowing group performance through stimulating intragroup insurance. Group pressure is found to have a small effect in deterring moral hazard, while the effect of social ties among members is statistically insignificant.

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Publisher Info
Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 109 (1999)
Issue (Month): 457 (July)
Pages: 463-75
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Handle: RePEc:ecj:econjl:v:109:y:1999:i:457:p:463-75

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  1. Li, Shanjun & Liu, Yanyan & Deininger, Klaus, 2009. "How Important are Peer Effects in Group Lending? Estimating a Static Game of Incomplete Information," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49497, Agricultural and Applied Economics Association. [Downloadable!]
  2. Gine, Xavier & Karlan, Dean S., 2006. "Group versus individual liability : a field experiment in the Philippines," Policy Research Working Paper Series 4008, The World Bank. [Downloadable!]
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  3. Dean Karlan & Xavier Gine & Jonathan Morduch & Pamela Jakiela, 2006. "Microfinance Games," Working Papers 936, Economic Growth Center, Yale University. [Downloadable!]
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  4. Karlan, Dean S., 2007. "Social Connections and Group Banking," CEPR Discussion Papers 6194, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. Rafael Gomez & Eric Santor, 2003. "Do Peer Group Members Outperform Individual Borrowers? A Test of Peer Group Lending Using Canadian Micro-Credit Data," Working Papers 03-33, Bank of Canada. [Downloadable!]
  6. Haddad, Lawrence James & Maluccio, John A., 2002. "Trust, membership in groups, and household welfare," FCND discussion papers 135, International Food Policy Research Institute (IFPRI). [Downloadable!]
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  7. Azam, Jean-Paul & Gubert, Flore, 2004. "Those in Kayes: The Impact of Remittances on their Recipients in Africa," IDEI Working Papers 308, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
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  8. O. Emre Ergungor, 2006. "Bank branch presence and access to credit in low-to-moderate income neighborhoods," Working Paper 0616, Federal Reserve Bank of Cleveland. [Downloadable!]
  9. Matthew Jowett, 2004. "Theoretical insights into the development of health insurance in low-income countries," Working Papers 188chedp, Centre for Health Economics, University of York. [Downloadable!]
  10. Eliana La Ferrara, 2002. "Self-Help Groups and Income Generation in the Informal Settlements of Nairobi," Development Working Papers 163, Centro Studi Luca d\'Agliano, University of Milano. [Downloadable!]
  11. Abigail Barr & Bill Kinsey, 2004. "Do Men Really have no Shame?," Development and Comp Systems 0409008, EconWPA. [Downloadable!]
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