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Microfinance games

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  • Xavier Gine
  • Pamela Jakiela
  • Dean Karlan
  • Jonathan Morduch

Abstract

Microfinance has been heralded as an effective way to address imperfections in credit markets. But from a theoretical perspective, 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. The authors created an experimental economics laboratory in a large urban market in Lima, Peru and over seven months conducted 11 different games that allow them to unpack microfinance mechanisms in a systematic way. They 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 The Field Experiments Website in its series Framed Field Experiments with number 00150.

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Date of creation: 2006
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Handle: RePEc:feb:framed:00150

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Web page: http://www.fieldexperiments.com

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