Microfinance Games

Dean Karlan, Xavier Gine, Jonathan Morduch and Pamela Jakiela

Working Papers from Economic Growth Center, Yale University

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.

Keywords: Microfinance; Group Lending; Information Asymmetries; Contract Theory; Experimental Economics (search for similar items in EconPapers)
JEL-codes: C93 D10 D21 D82 D92 O12 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2006-06
New Economics Papers: this item is included in nep-cfn, nep-dev, nep-fmk and nep-mfd
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

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http://www.econ.yale.edu/growth_pdf/cdp936.pdf (application/pdf)

Related works:
Journal Article: Microfinance Games (2010)
Working Paper: Microfinance Games (2006)
Working Paper: Microfinance games (2006)
Working Paper: Microfinance Games (2006)
Working Paper: Microfinance games (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:egc:wpaper:936

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