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Microfinance Games

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Author Info

  • Dean Karlan

    ()
    (Economic Growth Center, Yale University)

  • Xavier Gine

    ()
    (World Bank)

  • Jonathan Morduch

    ()
    (New York University)

  • Pamela Jakiela

    (University of California, Berkeley)

Abstract

Microfinance has been heralded as an effective way to address imperfections in credit markets. From a theoretical perspective, however, the success of microfinance contracts has puzzling elements. In particular, the group-based mechanisms often employed are vulnerable to free-riding and collusion, although they can also reduce moral hazard and improve selection. We created an experimental economics laboratory in a large urban market in Lima, Peru and over seven months conducted eleven different games that allow us to unpack microfinance mechanisms in a systematic way. We find that risk-taking broadly conforms to predicted patterns, but that behavior is safer than optimal. The results help to explain why pioneering microfinance institutions have been moving away from group-based contracts.

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Bibliographic Info

Paper provided by Economic Growth Center, Yale University in its series Working Papers with number 936.

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Length: 46 pages
Date of creation: Jun 2006
Date of revision:
Handle: RePEc:egc:wpaper:936

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Related research

Keywords: Microfinance; Group Lending; Information Asymmetries; Contract Theory; Experimental Economics;

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References

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