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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)

Additional information is available for the following registered author(s):

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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Publisher 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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Find related papers by JEL classification:
O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Investment, or Financing
D10 - Microeconomics - - Household Behavior - - - General
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments

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References listed on IDEAS
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.:
  1. Dean S. Karlan & Jonathan Zinman, 2005. "Observing Unobservables: Identifying Information Asymmetries with a Consumer Credit Field Experiment," Working Papers 911, Economic Growth Center, Yale University. [Downloadable!]
    Other versions:
  2. Dean S. Karlan, 2005. "Using Experimental Economics to Measure Social Capital And Predict Financial Decisions," Working Papers 909, Economic Growth Center, Yale University. [Downloadable!]
    Other versions:
  3. Dean S. Karlan, 2005. "Social Connections and Group Banking," Working Papers 913, Economic Growth Center, Yale University. [Downloadable!]
    Other versions:
  4. Knack, Stephen & Keefer, Philip, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1251-88, November.
  5. Ashok S. Rai & Tomas Sj–str–m, 2004. "Is Grameen Lending Efficient? Repayment Incentives and Insurance in Village Economies," Review of Economic Studies, Blackwell Publishing, vol. 71(1), pages 217-234, 01. [Downloadable!] (restricted)
  6. Nidhiya Menon, 2004. "Consumption Smoothing in Micro Credit Programs," Development and Comp Systems 0403005, EconWPA. [Downloadable!]
  7. John A. List, 2004. "Neoclassical Theory Versus Prospect Theory: Evidence from the Marketplace," Econometrica, Econometric Society, vol. 72(2), pages 615-625, 03. [Downloadable!] (restricted)
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  8. Stiglitz, Joseph E, 1990. "Peer Monitoring and Credit Markets," World Bank Economic Review, Oxford University Press, vol. 4(3), pages 351-66, September.
  9. Dean S. Karlan, 2005. "Using Experimental Economics to Measure Social Capital and Predict Financial Decisions," Working Papers 182, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies.. [Downloadable!]
  10. Rabin, Matthew, 1993. "Incorporating Fairness into Game Theory and Economics," American Economic Review, American Economic Association, vol. 83(5), pages 1281-1302, December. [Downloadable!] (restricted)
  11. 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. [Downloadable!] (restricted)
  12. Dean S. Karlan, 2005. "Social Connections and Group Banking," Working Papers 181, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies.. [Downloadable!]
Full references

Cited by:
(explanations, 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.)

  1. Karlan, Dean S., 2007. "Social Connections and Group Banking," CEPR Discussion Papers 6194, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Honohan, Patrick, 2005. "Measuring microfinance access : building on existing cross-country data," Policy Research Working Paper Series 3606, The World Bank. [Downloadable!]
  3. Cull, Robert & Demirguc-Kunt, Asli & Morduch, Jonathan, 2006. "Financial performance and outreach : a global analysis of leading microbanks," Policy Research Working Paper Series 3827, The World Bank. [Downloadable!]
    Other versions:
  4. Flore Gubert & François Roubaud, 2005. "Analyser l’impact d’un projet de Micro-finance : l’exemple d’ADéFI à Madagascar," Working Papers DT/2005/14, DIAL (Développement, Institutions & Analyses de Long terme). [Downloadable!]
  5. John List, 2007. "Field Experiments: A Bridge between Lab and Naturally Occurring Data," Advances in Economic Analysis & Policy, Berkeley Electronic Press, vol. 6(2), pages 1747-1747. [Downloadable!] (restricted)
    Other versions:
  6. Claessens, Stijn & Feijen, Erik, 2006. "Finance and hunger : empirical evidence of the agricultural productivity channel," Policy Research Working Paper Series 4080, The World Bank. [Downloadable!]
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