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Referrals: Peer Screening and Enforcement in a Consumer Credit Field Experiment

Listed author(s):
  • Gharad Bryan
  • Dean Karlan
  • Jonathan Zinman

Empirical evidence on peer intermediation lags behind both theory and practice in which lenders use peers to mitigate adverse selection and moral hazard. Using a referral incentive under individual liability, we develop a two-stage field experiment that permits separate identification of peer screening and enforcement. Our key contribution is to allow for borrower heterogeneity in both ex ante repayment type and ex post susceptibility to social pressure. Our method allows identification of selection on repayment likelihood, selection on susceptibility to social pressure, and loan enforcement. Implementing our method in South Africa we find no evidence of screening but large enforcement effects. (JEL D14, D82, G21, O12, O16)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mic.20130234
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File URL: http://www.aeaweb.org/aej/mic/ds/0703/2013-0234_ds.zip
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Article provided by American Economic Association in its journal American Economic Journal: Microeconomics.

Volume (Year): 7 (2015)
Issue (Month): 3 (August)
Pages: 174-204

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Handle: RePEc:aea:aejmic:v:7:y:2015:i:3:p:174-204
Note: DOI: 10.1257/mic.20130234
Contact details of provider: Web page: https://www.aeaweb.org/aej-micro
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  1. Lori Beaman & Jeremy Magruder, 2012. "Who Gets the Job Referral? Evidence from a Social Networks Experiment," American Economic Review, American Economic Association, vol. 102(7), pages 3574-3593, December.
  2. Melanie Morten & Dean Karlan & Jonathan Zinman, 2012. "A Personal Touch: Text Messaging for Loan Repayment," Working Papers 1011, Economic Growth Center, Yale University.
  3. Stefan Klonner & Ashok Rai, 2008. "Cosigners as Collateral," Center for Development Economics 2008-08, Department of Economics, Williams College.
  4. Ghatak, Maitreesh, 1999. "Group lending, local information and peer selection," Journal of Development Economics, Elsevier, vol. 60(1), pages 27-50, October.
  5. Abhijit V. Banerjee & Timothy Besley & Timothy W. Guinnane, 1994. "Thy Neighbor's Keeper: The Design of a Credit Cooperative with Theory and a Test," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 491-515.
  6. Christian Ahlin & RobertM. Townsend, 2007. "Using Repayment Data to Test Across Models of Joint Liability Lending," Economic Journal, Royal Economic Society, vol. 117(517), pages 11-51, 02.
  7. Bond, Philip & Rai, Ashok S., 2008. "Cosigned vs. group loans," Journal of Development Economics, Elsevier, vol. 85(1-2), pages 58-80, February.
  8. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-298, April.
  9. Xavier Gine & Jessica Goldberg & Dean Yang, 2012. "Credit Market Consequences of Improved Personal Identification: Field Experimental Evidence from Malawi," American Economic Review, American Economic Association, vol. 102(6), pages 2923-2954, October.
  10. Banerjee, Abhijit & Duflo, Esther, 2004. "Do Firms Want to Borrow More? Testing Credit Constraints Using a Directed Lending Program," CEPR Discussion Papers 4681, C.E.P.R. Discussion Papers.
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