Marc Labie () (Centre Emile Bernheim, CERMi, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels and Faculté Warocqué, Université Mons-Hainaut.) Pierre-Guillaume Méon () (Centre Emile Bernheim, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels and DULBEA, Université Libre de Bruxelles, Brussels.) Ariane Szafarz () (Centre Emile Bernheim, CERMi, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels and DULBEA, Université Libre de Bruxelles, Brussels.)
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This paper studies how high-powered incentives may affect credit officers’ discriminatory practices in microfinance institutions. Using an agency model applied to a non-profit MFI, we argue that incentive contracts may help align the officer’s behavior with the MFI’s mission. However, since incentives are costly, and the MFI’s budget is limited, even a benevolent institution faces a trade-off between fighting discrimination and raising outreach. Welfare maximization may not imply full eradication of discriminatory practices. A non discriminating welfare-maximizing MFI may thus prefer paying smaller incentives, and letting its credit officer discriminate to some extent.
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Paper provided by Université Libre de Bruxelles, Solvay Brussels School of Economics and Management, Centre Emile Bernheim (CEB) in its series Working Papers CEB with number
09-017.RS.