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Pay, peek, punish? Repayment, information acquisition and punishment in a microcredit lab-in-the-field experiment

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  • Czura, Kristina

Abstract

Despite remarkable repayment rates in microcredit group lending, anecdotal evidence from the field suggests that there is excessive punishment among group members. To quantify excessive peer punishment, I conduct a lab-in-the-field experiment with actual microcredit borrowers in rural India. I design a repayment coordination game with strategic default and the possibility of acquiring information about a peer's investment return (peer peeking) and of sanctioning a peer (peer punishment). I observe loan repayment of over 90% and punishment of around 85%. Punishment is classified as excessive compared to a game-theoretically derived benchmark of zero punishment and a behaviorally-rooted benchmark of unjust punishment. This gives solid support to the anecdotal evidence and manifests the concern of excessive peer pressure in microcredit group lending. The most promising explanation is that borrowers have internalized the mission indoctrination of the microlender of what constitutes a good borrower, namely repaying loans and disciplining peers.

Suggested Citation

  • Czura, Kristina, 2015. "Pay, peek, punish? Repayment, information acquisition and punishment in a microcredit lab-in-the-field experiment," Journal of Development Economics, Elsevier, vol. 117(C), pages 119-133.
  • Handle: RePEc:eee:deveco:v:117:y:2015:i:c:p:119-133
    DOI: 10.1016/j.jdeveco.2015.07.009
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