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Microfinance Games

Author

Listed:
  • Xavier Gine

    (World Bank)

  • Pamela Jakiela

    (University of California, Berkeley)

  • Dean Karlan

    (Yale University)

  • Jonathan Morduch

    (New York University)

Abstract

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. The work also provides an example of how to use framed field experiments as a methodological bridge between laboratory and field experiments.

Suggested Citation

  • Xavier Gine & Pamela Jakiela & Dean Karlan & Jonathan Morduch, 2006. "Microfinance Games," Working Papers 2102, The Field Experiments Website.
  • Handle: RePEc:feb:wpaper:2102
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    File URL: http://aida.econ.yale.edu/karlan/papers/microfinancegames.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    microfinance; group lending; information asymmetries; contract theory; experimental economics;

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • D10 - Microeconomics - - Household Behavior - - - General
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments

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