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Banking with sentiments. A model of fiduciary interactions in micro-credit programs

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  • V. Pelligra

    ()

Abstract

The success of many micro-credit initiatives is difficult to account for in the traditional economic framework, where, mainly because of the assumption of self-interested behaviour, credit is rationed and provided only to those able to back it with collaterals. Having analysed different alternative explanations for such a success, the paper introduces the concept of trust responsiveness in the lender-borrower relationship and formalises it in a psychological game-theoretical model aimed at explaining the unusually high rate of repayment experienced in micro-credit programs. Three well-known psychological effects are introduced to discuss the factors that may positively or negatively affect borrowers' trustworthiness. This model provides important normative implications for institutional design.

Suggested Citation

  • V. Pelligra, 2005. "Banking with sentiments. A model of fiduciary interactions in micro-credit programs," Working Paper CRENoS 200503, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  • Handle: RePEc:cns:cnscwp:200503
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    References listed on IDEAS

    as
    1. Jain, Pankaj S., 1996. "Managing credit for the rural poor: Lessons from the Grameen Bank," World Development, Elsevier, vol. 24(1), pages 79-89, January.
    2. Dufwenberg, Martin & Gneezy, Uri, 2000. "Measuring Beliefs in an Experimental Lost Wallet Game," Games and Economic Behavior, Elsevier, vol. 30(2), pages 163-182, February.
    3. Abigail Barr & Bill Kinsey, 2002. "Do men really have no shame?," CSAE Working Paper Series 2002-05, Centre for the Study of African Economies, University of Oxford.
    4. Varian, H.R., 1989. "Monitoring Agents With Other Agents," Papers 89-18, Michigan - Center for Research on Economic & Social Theory.
    5. Stiglitz, Joseph E, 1990. "Peer Monitoring and Credit Markets," World Bank Economic Review, World Bank Group, vol. 4(3), pages 351-366, September.
    6. Morduch, Jonathan, 1999. "The role of subsidies in microfinance: evidence from the Grameen Bank," Journal of Development Economics, Elsevier, vol. 60(1), pages 229-248, October.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    microfinance; trust responsiveness; psychological game theory;

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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