Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/26977
Authors: 
Giné, Xavier
Jakiela, Pamela
Karlan, Dean S.
Morduch, Jonathan
Year of Publication: 
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.
Subjects: 
microfinance
group lending
information asymmetries
contract theory
experimental economics
JEL: 
O12
D92
D10
D21
D82
C93
Document Type: 
Working Paper

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