Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/312189 
Authors: 
Year of Publication: 
2024
Series/Report no.: 
ZEW Discussion Papers No. 24-070
Publisher: 
ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung, Mannheim
Abstract: 
Microcredit, a financial tool providing uncollateralized loans to low-income individuals, has seen a shift from joint-liability (JL) to individual liabil- ity (IL) lending models. This article tests a theory explaining this shift, focusing on borrowers matching into groups exposed to similar economic shocks under JL, diminishing its effectiveness. I reconcile conflicting theo- retical predictions and propose an empirical strategy to distinguish adverse selection from moral hazard effects. Using data from Thailand, I find that increasing diversity within borrower groups leads to a 10 percentage point improvement in timely repayment. These results inform contract design and strategies to reduce information asymmetries in lending practices
Subjects: 
microcredit
joint liability
diversification
market design
stable matching
endogeneity
selection model
agriculture
Thailand
JEL: 
C11
C31
C34
C36
C78
C57
D02
D47
D82
G21
O16
Q14
Document Type: 
Working Paper

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