The Dynamics of Cooperation in Group Lending - A Microfinance Experiment

Peter Werner

No 49, Working Paper Series in Economics from University of Cologne, Department of Economics

Abstract: We investigate the dynamics of borrower behavior in a microfinance experiment in which subjects are jointly responsible for credit repayment. Although cooperation levels are generally high, moral hazard problems persist among borrowers. Moreover, the path dependency of decisions mitigates the insurance effect of joint liability. We compare two conversion mechanisms from joint to individual liability. First, an active choice of the joint liability contract does not systematically increase cooperation. Second, conversion based on repayment success tends to have a detrimental impact on cooperation among the remaining joint liability borrowers.

Keywords: microfinance; group lending; individual lending; social preferences (search for similar items in EconPapers)
JEL-codes: C92 G21 H41 O16 (search for similar items in EconPapers)
Date: 2010-03-11
New Economics Papers: this item is included in nep-cbe, nep-dev, nep-exp and nep-mfd
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:kls:series:0049

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