Microfinance has been heralded as an effective way to address imperfections in credit markets. From a theoretical perspective, however, the success of microfinance contracts has puzzling elements. In particular, the group-based mechanisms often employed are vulnerable to free-riding and collusion, although they can also reduce moral hazard and improve selection. We created an experimental economics laboratory in a large urban market in Lima, Peru and over seven months conducted eleven different games that allow us to unpack microfinance mechanisms in a systematic way. We find that risk-taking broadly conforms to predicted patterns, but that behavior is safer than optimal. The results help to explain why pioneering microfinance institutions have been moving away from group-based contracts.
|Date of creation:||Jun 2006|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (203) 432-3610
Fax: (203) 432-3898
Web page: http://www.econ.yale.edu/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rabin, Matthew, 1993.
"Incorporating Fairness into Game Theory and Economics,"
American Economic Review,
American Economic Association, vol. 83(5), pages 1281-1302, December.
- M. Rabin, 2001. "Incorporating Fairness into Game Theory and Economics," Levine's Working Paper Archive 511, David K. Levine.
- Matthew Rabin., 1992. "Incorporating Fairness into Game Theory and Economics," Economics Working Papers 92-199, University of California at Berkeley.
- Stiglitz, Joseph E, 1990. "Peer Monitoring and Credit Markets," World Bank Economic Review, World Bank Group, vol. 4(3), pages 351-66, September.
- Dean S. Karlan & Jonathan Zinman, 2005. "Observing Unobservables: Identifying Information Asymmetries with a Consumer Credit Field Experiment," Working Papers 911, Economic Growth Center, Yale University.
- Nidhiya Menon, 2004. "Consumption Smoothing in Micro Credit Programs," Development and Comp Systems 0403005, EconWPA.
- John List, 2004.
"Neoclassical theory versus prospect theory: Evidence from the marketplace,"
Framed Field Experiments
00174, The Field Experiments Website.
- John A. List, 2004. "Neoclassical Theory Versus Prospect Theory: Evidence from the Marketplace," Econometrica, Econometric Society, vol. 72(2), pages 615-625, 03.
- John A. List, 2003. "Neoclassical Theory Versus Prospect Theory: Evidence from the Marketplace," NBER Working Papers 9736, National Bureau of Economic Research, Inc.
- Dean S. Karlan, 2005.
"Using Experimental Economics to Measure Social Capital and Predict Financial Decisions,"
182, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
- Dean S. Karlan, 2005. "Using Experimental Economics to Measure Social Capital and Predict Financial Decisions," American Economic Review, American Economic Association, vol. 95(5), pages 1688-1699, December.
- Dean Karlan, 2004. "Using experimental economics to measure social capital and predict financial decisions," Artefactual Field Experiments 00074, The Field Experiments Website.
- Knack, Stephen & Keefer, Philip, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1251-88, November.
- Kennedy, Bruce P. & Kawachi, Ichiro & Prothrow-Stith, Deborah & Lochner, Kimberly & Gupta, Vanita, 1998. "Social capital, income inequality, and firearm violent crime," Social Science & Medicine, Elsevier, vol. 47(1), pages 7-17, July.
- Dean S. Karlan, 2005. "Social Connections and Group Banking," Working Papers 913, Economic Growth Center, Yale University.
- Ashok S. Rai & Tomas Sj–str–m, 2004. "Is Grameen Lending Efficient? Repayment Incentives and Insurance in Village Economies," Review of Economic Studies, Wiley Blackwell, vol. 71(1), pages 217-234, 01.
- Dean S. Karlan, 2005. "Using Experimental Economics to Measure Social Capital And Predict Financial Decisions," Working Papers 909, Economic Growth Center, Yale University.
- Wydick, Bruce, 1999. "Can Social Cohesion Be Harnessed to Repair Market Failures? Evidence from Group Lending in Guatemala," Economic Journal, Royal Economic Society, vol. 109(457), pages 463-75, July.
When requesting a correction, please mention this item's handle: RePEc:egc:wpaper:936. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Louise Danishevsky)
If references are entirely missing, you can add them using this form.