Can Social Cohesion Be Harnessed to Repair Market Failures? Evidence from Group Lending in Guatemala
The success of group lending in developing countries has been attributed to the ability of the institution to mitigate asymmetric information problems in credit markets. Previous research has offered a number of explanations for this phenomenon: social ties between borrowing group members, internal group pressure to repay loans, and peer monitoring. This research presents empirical tests on borrowing group data from Guatemala which indicate that peer monitoring significantly effects borrowing group performance through stimulating intragroup insurance. Group pressure is found to have a small effect in deterring moral hazard, while the effect of social ties among members is statistically insignificant.
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Volume (Year): 109 (1999)
Issue (Month): 457 (July)
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