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The Economic Returns to Social Interaction: Experimental Evidence from Microfinance. (2011)

by Benjamin Feigenberg, Erica Field, Rohini Pande
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Using Experimental Economics to Measure Social Capital and Predict Financial Decisions,” Working Paper

by Dean S. Karlan , 2002
"... Abstract: Questions remain as to whether results from experimental economics games are generalizable to real decisions in non-laboratory settings. I conduct a survey and two experiments, a Trust game and a Public Goods game, to measure social capital. Social capital purports to provide incentives to ..."
Abstract - Cited by 229 (21 self) - Add to MetaCart
Abstract: Questions remain as to whether results from experimental economics games are generalizable to real decisions in non-laboratory settings. I conduct a survey and two experiments, a Trust game and a Public Goods game, to measure social capital. Social capital purports to provide incentives to individuals to abide by otherwise difficult to enforce contracts. I then examine whether behavior in the games predicts repayment of loans to a Peruvian group lending microfinance program. I find that individuals identified as "trustworthy " by the Trust game are more likely to repay their loans. Individuals identified as "trusting " default more and save less, suggesting that those who “trust ” more in the game are prone to taking bad risks. Behavior in a public goods game does not predict any future decisions in this context. Those with more positive attitudes towards society, as measured by three questions identical to those used in the General Social Survey, are more likely to repay their loans.

Group Lending with Heterogeneous Types

by Li Gan, Manuel A. Hernandez, Yanyan Liu , 2013
"... ..."
Abstract - Cited by 9 (2 self) - Add to MetaCart
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Moral Hazard and Peer Monitoring in a Laboratory Microfinance Experiment *

by Timothy N. Cason, Lata Gangadharan, Pushkar Maitra, Shyamal Chowdhury, Jeorg Oechssler , 2011
"... This paper reports the results from a laboratory microfinance experiment of group lending in the presence of moral hazard and (costly) peer monitoring. We compare peer monitoring treatments in which credit is provided to members of the group to individual lending treatments with lender monitoring. W ..."
Abstract - Cited by 7 (1 self) - Add to MetaCart
This paper reports the results from a laboratory microfinance experiment of group lending in the presence of moral hazard and (costly) peer monitoring. We compare peer monitoring treatments in which credit is provided to members of the group to individual lending treatments with lender monitoring. We find that if the cost of peer monitoring is lower than the cost of lender monitoring, peer monitoring results in higher loan frequencies, higher monitoring and higher repayment rates compared to lender monitoring. In the absence of monitoring cost differences, however, lending, monitoring and repayment behaviour is mostly similar across group and individual lending schemes. Within group lending, contrary to theoretical predictions, simultaneous and sequential lending rules provide equivalent empirical performance. JEL Classification: G21, C92, O2.

2012): “Public Good Provision in Indian Rural Areas: the Returns to Collective Action by Microfinance Groups

by Paolo Casini, Lore V, Zaki Wahhaj, Paolo Casini, Lore V, Zaki Wahhaj
"... Self-help groups (SHGs) are the most common form of microfinance in India. We provide evidence that SHGs, composed of women only, undertake collective actions for the provision of public goods. Using a theoretical model, we show that an elected official, whose aim is to maximise re-election chances, ..."
Abstract - Cited by 2 (0 self) - Add to MetaCart
Self-help groups (SHGs) are the most common form of microfinance in India. We provide evidence that SHGs, composed of women only, undertake collective actions for the provision of public goods. Using a theoretical model, we show that an elected official, whose aim is to maximise re-election chances, would exert higher effort in providing public goods when private citizens undertake collective action and coordinate their voluntary contributions towards the same goods. This effect occurs although government and private contributions are assumed to be perfect substitutes. Using first-hand data on SHGs in India, we test the predictions of the model and show that, in response to collective action by SHGs, local authorities tackle a larger variety of public issues, and are more likely to tackle issues of interest to SHGs.

Institutionalizing ethics in institutional voids: Building positive ethical strength to serve women microfinance borrowers in negative contexts

by Subrata Chakrabarty A. E. Bass, S. Chakrabarty, A. E. Bass - Journal of Business Thunderbird International Business Review , 2013
"... Institutionalizing ethics in institutional voids: Building positive ethical strength to serve women microfinance borrowers in negative contexts Author: ..."
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Institutionalizing ethics in institutional voids: Building positive ethical strength to serve women microfinance borrowers in negative contexts Author:
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...ate poverty at the BoP, it must be examined from a neutral, rather than an overly optimistic, lens. MFIs operate in very difficult contexts in order to provide financial services to the world’s poor (=-=Feigenberg et al. 2011-=-; Schreiner 2002). Thus, all of the threats associated with microfinance from both the MFIs’ and borrowers’ perspectives must be acknowledged in order to propel this industry and future research forwa...

Market Structure and Borrower Welfare in

by Jonathan De Quidt, Thiemo Fetzer, Maitreesh Ghatak, Jean Tirole, Abhijit Banerjee , 2012
"... Motivated by recent controversies surrounding the role of commercial lenders in microfinance, we analyze borrower welfare under different market structures, considering a benevolent non-profit lender, a for-profit monopolist, and a competitive credit market. To understand the magnitude of the effect ..."
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Motivated by recent controversies surrounding the role of commercial lenders in microfinance, we analyze borrower welfare under different market structures, considering a benevolent non-profit lender, a for-profit monopolist, and a competitive credit market. To understand the magnitude of the effects analyzed, we simulate the model with parameters estimated from the MIX Market database. Our results suggest that market power can have severe implications for borrower welfare, while despite possible information frictions competition typically delivers similar borrower welfare to non-profit lending. In addition, for-profit lenders are less likely to use joint liability than non-profits.

Sex and credit: Is there a gender bias in microfinance?, Innocenzo Gasparini Institute for Economic Research Working Paper 411

by T. H. L. Behr, P. Madestam, Thorsten Beck, Patrick Behr, Andreas Madestam , 2011
"... Discussion Paper; Vol. 2011-027). Tilburg: EBC. General rights Copyright and moral rights for the publications made accessible in the public portal are retained by the authors and/or other copyright owners and it is a condition of accessing publications that users recognise and abide by the legal re ..."
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Discussion Paper; Vol. 2011-027). Tilburg: EBC. General rights Copyright and moral rights for the publications made accessible in the public portal are retained by the authors and/or other copyright owners and it is a condition of accessing publications that users recognise and abide by the legal requirements associated with these rights.? Users may download and print one copy of any publication from the public portal for the purpose of private study or research? You may not further distribute the material or use it for any profit-making activity or commercial gain? You may freely distribute the URL identifying the publication in the public portal Take down policy If you believe that this document breaches copyright, please contact us providing details, and we will remove access to the work immediately and investigate your claim.
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... of asymmetric information in the credit markets(Karlan and Zinman, 2009). It further links to the work looking at mechanisms that cansimprove access to finance, such as social capital (Karlan, 2007; =-=Feigenberg et al., 2011-=-) andsjoint liability (Giné and Karlan, 2011). The setting of the current study, a for-profit lender insAlbania, extending credit under individual liability also fits the pattern of the secondsgenerat...

Playing Well with Others: The Role of Social Capital in Traffic Accident Prevention

by Matthew G Nagler
"... Using data from a panel of 48 U.S. states during 1997-2006, I present evidence that social capital reduces fatal traffic accidents by fostering pro-social behavior among drivers. I estimate simultaneous equation systems that model the incidence of interpersonal interaction-related versus non-intera ..."
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Using data from a panel of 48 U.S. states during 1997-2006, I present evidence that social capital reduces fatal traffic accidents by fostering pro-social behavior among drivers. I estimate simultaneous equation systems that model the incidence of interpersonal interaction-related versus non-interaction-related traffic outcomes, in which variation in endogenous social capital is identified using snow depth. My results show that social capital has a larger relative effect on multi-vehicle and junction-related fatalities and fatal crashes, incidents with respect to which motorist interaction is most critical to outcomes. The findings are robust to alternative specifications and measures of social capital.
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...icial effects on health and well-being.1 Most of the empirical evidence has centered on statistical associations between social capital and other variables. Definitive causation has been hard to establish [Helliwell 2001], and the putative causal mechanisms involved in social capital’s economic and health effects have often been discussed loosely with little hard evidence [Sobel 2002]. As an exception to this, a few recent studies have shown that social connections create economic benefits specifically by acting as collateral to secure transactions and reduce moral hazard [Karlan et al. 2009; Feigenberg et al. 2011; Jackson and Schneider 2011]. These studies have demonstrated that people are motivated to make good on commitments to repay loans and protect property – in effect, fulfilling implicit contracts – so as not to jeopardize their relationships with people they know or, alternatively, risk their standing within close-knit groups (for example, ethnic communities). The studies provide convincing evidence of economic benefits that follow directly from social cohesion in the context of close relationships. But important questions remain unanswered. Does social connectedness provide demonstrable benef...

Group Lending Without Joint Liability

by Jonathan De Quidt , Thiemo Fetzer , Maitreesh Ghatak
"... Abstract This paper contrasts individual liability lending with and without groups to joint liability lending. By doing so, we shed light on an apparent shift away from joint liability lending towards individual liability lending. We show that individual lending with or without groups may constitut ..."
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Abstract This paper contrasts individual liability lending with and without groups to joint liability lending. By doing so, we shed light on an apparent shift away from joint liability lending towards individual liability lending. We show that individual lending with or without groups may constitute a welfare improvement so long as borrowers have sufficient social capital to sustain mutual insurance. Secondly, we explore how a purely mechanical argument in favour of the use of groups -namely lower transaction costs -may actually be used explicitly by lenders to encourage the creation of social capital.
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...roup lending may contribute to the creation of social capital, and therefore, may induce IJ.3 Our analysis is motivated by two influential recent empirical studies. Gine and Karlan (2011) found that removing the joint liability clause, but retaining the group meetings, of a random subset of borrowing groups of Green Bank in the Philippines had no meaningful effect on repayment rates. In our model, this outcome arises when the newly individually liable groups have sufficient social capital to continue to assist one another with repayments, as under EJ. Indeed, both Gine and Karlan (2011) and Feigenberg et al. (2011) find evidence for intra-group transfers to help a borrower repay her loan even without explicit joint liability.4 Secondly, Feigenberg 2An earlier study Cull et al. (2009) puts this number at 51% using 2002/04 data involving 315 institutions. The year 2009 is one for which the largest cross-section of lending methodologies is available. Solidarity group loans defined by MIX as those for which “some aspect of loan consideration depends on the group, including credit analysis, liability, guarantee, collateral, and loan size and conditions.” Individual loans are “made to individuals, and any gua...

† To access the Appendix and disclosure statements, visit

by Benjamin A. Olken
"... I magine a nefarious researcher in economics who is only interested in finding a statistically significant result of an experiment. The researcher has 100 different variables he could examine, and the truth is that the experiment has no impact. By construction, the researcher should find an average ..."
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I magine a nefarious researcher in economics who is only interested in finding a statistically significant result of an experiment. The researcher has 100 different variables he could examine, and the truth is that the experiment has no impact. By construction, the researcher should find an average of five of these variables statistically significantly different between the treatment group and the control group at the 5 percent level—after all, the exact definition of 5 percent significance implies that there will be a 5 percent false rejection rate of the null hypothesis that there is no difference between the groups. The nefarious researcher, who is interested only in showing that this experiment has an effect, chooses to report only the results on the five variables that pass the statistically significant threshold. If the researcher is interested in a particular sign of the result—that is, showing that this program “works ” or “doesn’t work” — on average half of these results will go in the direction the researcher wants. Thus, if a researcher can discard or not report all the variables that do not agree with his desired outcome, the researcher is virtually guaranteed a few positive and statistically significant results, even if in fact the experiment has no effect. This is of course the well-known problem of “data-mining. ” If the researcher can choose which results to report, it is easy to see how results can be manipulated. Casey, Glennerster, and Miguel (2012), for example, demonstrate in a real-world economics context how researchers with opposite agendas could hypothetically string together two opposite but coherent sets of results by cherry-picking either positive or negative statistically significant results.
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