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|Title:||Microfinance games |
Karlan, Dean S.
|Issue Date:||2006 |
|Series/Report no.:||Center discussion paper // Economic Growth Center 936|
|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.|
|Document Type:||Working Paper|
|Appears in Collections:||Center Discussion Papers, Economic Growth Center (EGC), Yale University|
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