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The Diffusion of Microfinance

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  • Abhijit Banerjee
  • Arun G. Chandrasekhar
  • Esther Duflo
  • Matthew O. Jackson

Abstract

We examine how participation in a microfinance program diffuses through social networks. We collected detailed demographic and social network data in 43 villages in South India before microfinance was introduced in those villages and then tracked eventual participation. We exploit exogenous variation in the importance (in a network sense) of the people who were first informed about the program, "the injection points". Microfinance participation is higher when the injection points have higher eigenvector centrality. We estimate structural models of diffusion that allow us to (i) determine the relative roles of basic information transmission versus other forms of peer influence, and (ii) distinguish information passing by participants and non-participants. We find that participants are significantly more likely to pass information on to friends and acquaintances than informed non-participants, but that information passing by non-participants is still substantial and significant, accounting for roughly a third of informedness and participation. We also find that, conditioned on being informed, an individual's decision is not significantly affected by the participation of her acquaintances.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17743.

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Date of creation: Jan 2012
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Publication status: published as “The Diffusion of Microfinance” (with Esther Duflo, Arun G. Chandrasekhar, Matthew O. Jackson), Science Magazine, Vol. 341, no. 6144, July 2013.
Handle: RePEc:nbr:nberwo:17743

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References

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  1. Dunia López-Pintado, 2004. "Diffusion In Complex Social Networks," Working Papers. Serie AD 2004-33, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  2. Coralio Ballester & Antoni Calvo-Armengol & Yves Zenou, 2005. "Who's Who in Networks. Wanted: the Key Player," NajEcon Working Paper Reviews 666156000000000586, www.najecon.org.
  3. Jackson Matthew O. & Rogers Brian W., 2007. "Relating Network Structure to Diffusion Properties through Stochastic Dominance," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-16, February.
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  1. On Cows and Central Tenets of Capitalism!
    by paragwaknis in Musings of the Sorts on 2013-11-30 18:48:31
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Cited by:
  1. Kathy Fogel & Liping Ma & Randall Morck, 2014. "Powerful Independent Directors," NBER Working Papers 19809, National Bureau of Economic Research, Inc.
  2. Noll, Daniel & Dawes, Colleen & Rai, Varun, 2014. "Solar Community Organizations and active peer effects in the adoption of residential PV," Energy Policy, Elsevier, vol. 67(C), pages 330-343.
  3. Comola, Margherita & Mendola, Mariapia, 2014. "The Formation of Migrant Networks," IZA Discussion Papers 7981, Institute for the Study of Labor (IZA).
  4. Cai, Jing & de Janvry, Alain & Sadoulet, Elisabeth, 2013. "Social Networks and the Decision to Insure," MPRA Paper 46861, University Library of Munich, Germany.
  5. Amrei M. Lahno & Marta Serra-Garcia, 2012. "Peer Effects in Risk Taking," CESifo Working Paper Series 4057, CESifo Group Munich.

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