Peer Grouping in An Adverse Selection Model
This paper develops an adverse selection model which uncovers two mechanisms whereby Grameen-style peer grouping systems can trigger lower interest rates. In one extreme scenario, where participant borrowers do not have prior information about the type of their peers, lower interest rate are triggered by a `collateral effect'. In the opposite scenario, where participant borrowers have perfect knowledge about their peers, lower interest rates are triggered by a `self selection' effect. Because of the latter effect, peer grouping can be viewed as a mechanism for banks to extract information from borrowers. The existence of the former effect implies, however, that information extraction by banks necessary for peer grouping systems to succeed in reducing interest rates, and that peer grouping systems are potentially implementable beyond the sphere of village economies with perfect information.
|Date of creation:||Nov 1996|
|Contact details of provider:|| Postal: Gower Street, London WC1E 6BT|
Web page: http://www.ucl.ac.uk/economics/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:wuk:ucloec:9624. 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: (WoPEc Project)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.