How Important are Peer Effects in Group Lending? Estimating a Static Game of Incomplete Information
AbstractWe quantify the importance of peer effects in group lending by estimating a static game of incomplete information. In our model, group members make their repayment decisions simultaneously based on their household and loan characteristics as well as their expectations on other members' repayment decisions. Exploiting a rich data set of a microfinance program in India, our estimation results suggest that the probability of a member making a full repayment would be 15 percentage points higher if all the other fellow members make full repayment compared to the case where none of the other members repay in full. We also find that large inconsistencies exist in the estimated effects of other variables in models that do not incorporate peer effects and control for unobserved heterogeneity.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by International Association of Agricultural Economists in its series 2009 Conference, August 16-22, 2009, Beijing, China with number 51699.
Date of creation: 2009
Date of revision:
Microfinance; repayment; strategic default; International Development;
Other versions of this item:
- Li, Shanjun & Liu, Yanyan & Deininger, Klaus W., 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.
- Li, Shanjun & Liu, Yanyan & Deininger, Klaus, 2009. "How important are peer effects in group lending?: Estimating a static game of incomplete information," IFPRI discussion papers 940, International Food Policy Research Institute (IFPRI).
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- repec:rje:randje:v:37:y:2006:3:p:619-640 is not listed on IDEAS
- Elie Tamer & Federico Ciliberto, 2004.
"Market Structure and Multiple Equilibria in Airline Markets,"
2004 Meeting Papers
52, Society for Economic Dynamics.
- Federico Ciliberto & Elie Tamer, 2009. "Market Structure and Multiple Equilibria in Airline Markets," Econometrica, Econometric Society, vol. 77(6), pages 1791-1828, November.
- Ciliberto, Federico & Tamer, Elie, 2009. "Market structure and multiple equilibria in airline markets," MPRA Paper 38635, University Library of Munich, Germany.
- Elie Tamer & Federico Ciliberto, 2004. "Market Structure and Multiple Equilibria in Airline Markets," Econometric Society 2004 North American Winter Meetings 517, Econometric Society.
- Sharma, Manohar & Zeller, Manfred, 1997. "Repayment performance in group-based credit programs in Bangladesh: An empirical analysis," World Development, Elsevier, vol. 25(10), pages 1731-1742, October.
- Brock,W.A. & Durlauf,S.N., 2000.
"Discrete choice with social interactions,"
7, Wisconsin Madison - Social Systems.
- Dean S. Karlan, 2005.
"Social Connections and Group Banking,"
181, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
- Jonathan Conning, 2000. "Monitoring by Peers or by Delegates? Joint Liability Loans under Moral Hazard," Department of Economics Working Papers 2000-07, Department of Economics, Williams College.
- Bresnahan, T.F & Reiss, P.C., 1989.
"Entry And Competition In Concentrated Markets,"
151, Stanford - Studies in Industry Economics.
- Paul B. Ellickson & Sanjog Misra, 2008.
"Supermarket Pricing Strategies,"
INFORMS, vol. 27(5), pages 811-828, 09-10.
- Besley, T. & Coate, S., 1991.
"Group Lending, Repayment Incentives And Social Collateral,"
152, Princeton, Woodrow Wilson School - Development Studies.
- Besley, Timothy & Coate, Stephen, 1995. "Group lending, repayment incentives and social collateral," Journal of Development Economics, Elsevier, vol. 46(1), pages 1-18, February.
- Patrick Bajari & Han Hong & Stephen Ryan, 2004.
"Identification and Estimation of Discrete Games of Complete Information,"
NBER Technical Working Papers
0301, National Bureau of Economic Research, Inc.
- Stephen Ryan & Patrick Bajari & Han Hong, 2005. "Identification and Estimation of Discrete Games of Complete Information," Computing in Economics and Finance 2005 53, Society for Computational Economics.
- Paxton, Julia & Graham, Douglas & Thraen, Cameron, 2000. "Modeling Group Loan Repayment Behavior: New Insights from Burkina Faso," Economic Development and Cultural Change, University of Chicago Press, vol. 48(3), pages 639-55, April.
- Patrick Bajari & Han Hong & John Krainer & Denis Nekipelov, 2006.
"Estimating Static Models of Strategic Interaction,"
NBER Working Papers
12013, National Bureau of Economic Research, Inc.
- Bajari, Patrick & Hong, Han & Krainer, John & Nekipelov, Denis, 2010. "Estimating Static Models of Strategic Interactions," Journal of Business & Economic Statistics, American Statistical Association, vol. 28(4), pages 469-482.
- Guinnane, T. & Banerjee, A. & Besley, T., 1993.
"Thy Neighbor's Keeper: the Design of a Credit Cooperative with Theory and a Test,"
705, Yale - Economic Growth Center.
- Banerjee, Abhijit V & Besley, Timothy & Guinnane, Timothy W, 1994. "Thy Neighbor's Keeper: The Design of a Credit Cooperative with Theory and a Test," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 491-515, May.
- Ting Zhu & Vishal Singh, 2009. "Spatial competition with endogenous location choices: An application to discount retailing," Quantitative Marketing and Economics, Springer, vol. 7(1), pages 1-35, March.
- Garikipati, Supriya, 2008. "The Impact of Lending to Women on Household Vulnerability and Women's Empowerment: Evidence from India," World Development, Elsevier, vol. 36(12), pages 2620-2642, December.
- Elie Tamer, 2003. "Incomplete Simultaneous Discrete Response Model with Multiple Equilibria," Review of Economic Studies, Wiley Blackwell, vol. 70(1), pages 147-165, January.
- Evans, William N & Oates, Wallace E & Schwab, Robert M, 1992. "Measuring Peer Group Effects: A Study of Teenage Behavior," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 966-91, October.
- Berry, Steven T, 1992. "Estimation of a Model of Entry in the Airline Industry," Econometrica, Econometric Society, vol. 60(4), pages 889-917, July.
- Patrick J. Bayer & Christopher D. Timmins, 2004.
"Estimating Equilibrium Models of Sorting Across Locations,"
Yale School of Management Working Papers
ysm415, Yale School of Management.
- Patrick Bayer & Christopher Timmins, 2007. "Estimating Equilibrium Models Of Sorting Across Locations," Economic Journal, Royal Economic Society, vol. 117(518), pages 353-374, 03.
- Patrick Bayer & Christopher Timmins, 2003. "Estimating Equilibrium Models of Sorting across Locations," Working Papers 862, Economic Growth Center, Yale University.
- Sharma, Manohar & Zeller, Manfred, 1996. "Repayment performance in group-based credit programs in Bangladesh," FCND discussion papers 15, International Food Policy Research Institute (IFPRI).
- Henderson, Vernon & Mieszkowski, Peter & Sauvageau, Yvon, 1978. "Peer group effects and educational production functions," Journal of Public Economics, Elsevier, vol. 10(1), pages 97-106, August.
- Avi Goldfarb & Mo Xiao, 2008.
"Who thinks about the competition? Managerial ability and strategic entry in US local telephone markets,"
08-21, NET Institute, revised Oct 2008.
- Avi Goldfarb & Mo Xiao, 2011. "Who Thinks about the Competition? Managerial Ability and Strategic Entry in US Local Telephone Markets," American Economic Review, American Economic Association, vol. 101(7), pages 3130-61, December.
- Zeller, Manfred, 1998. "Determinants of Repayment Performance in Credit Groups: The Role of Program Design, Intragroup Risk Pooling, and Social Cohesion," Economic Development and Cultural Change, University of Chicago Press, vol. 46(3), pages 599-620, April.
- Panle Jia, 2008. "What Happens When Wal-Mart Comes to Town: An Empirical Analysis of the Discount Retailing Industry," Econometrica, Econometric Society, vol. 76(6), pages 1263-1316, November.
- Stiglitz, Joseph E, 1990. "Peer Monitoring and Credit Markets," World Bank Economic Review, World Bank Group, vol. 4(3), pages 351-66, September.
- Zeller, Manfred, 1996. "Determinants of repayment performance in credit groups," FCND discussion papers 13, International Food Policy Research Institute (IFPRI).
- McKelvey Richard D. & Palfrey Thomas R., 1995. "Quantal Response Equilibria for Normal Form Games," Games and Economic Behavior, Elsevier, vol. 10(1), pages 6-38, July.
- Wydick, Bruce, 1999. "Can Social Cohesion Be Harnessed to Repair Market Failures? Evidence from Group Lending in Guatemala," Economic Journal, Royal Economic Society, vol. 109(457), pages 463-75, July.
- Jonathan Morduch, 1999. "The Microfinance Promise," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1569-1614, December.
- Armendariz de Aghion, Beatriz, 1999. "On the design of a credit agreement with peer monitoring," Journal of Development Economics, Elsevier, vol. 60(1), pages 79-104, October.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search).
If references are entirely missing, you can add them using this form.