Microfinance Games

Dean Karlan (), Xavier Gine (), Jonathan Morduch () and Pamela Jakiela
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Pamela Jakiela: University of California, Berkeley

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: O12 D92 D10 D21 D82 C93 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-dev and nep-fmk
Date: 2006-06
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Working Paper: Microfinance Games (2006)
Working Paper: Microfinance games (2006)
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Persistent link: http://EconPapers.repec.org/RePEc:egc:wpaper:936

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