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Microfinance Games

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Author Info

  • Xavier Gine

    (World Bank)

  • Pamela Jakiela

    (University of California, Berkeley)

  • Dean Karlan

    (Yale University)

  • Jonathan Morduch

    (New York University)

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. The work also provides an example of how to use framed field experiments as a methodological bridge between laboratory and field experiments.

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File URL: http://aida.econ.yale.edu/karlan/papers/microfinancegames.pdf
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Bibliographic Info

Paper provided by The Field Experiments Website in its series Working Papers with number 2102.

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Length: 52 pages
Date of creation: Sep 2006
Date of revision:
Handle: RePEc:feb:wpaper:2102

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

Related research

Keywords: microfinance; group lending; information asymmetries; contract theory; experimental economics;

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References

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