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How Important are Peer Effects in Group Lending? Estimating a Static Game of Incomplete Information

Shanjun Li (), Yanyan Liu () and Klaus Deininger

No 51699, 2009 Conference, August 16-22, 2009, Beijing, China from International Association of Agricultural Economists

Abstract: We quantify the importance of peer effects in group lending by estimating a static game of incomplete information. In our model, group members make their repayment decisions simultaneously based on their household and loan characteristics as well as their expectations on other members' repayment decisions. Exploiting a rich data set of a microfinance program in India, our estimation results suggest that the probability of a member making a full repayment would be 15 percentage points higher if all the other fellow members make full repayment compared to the case where none of the other members repay in full. We also find that large inconsistencies exist in the estimated effects of other variables in models that do not incorporate peer effects and control for unobserved heterogeneity.

Keywords: International; Development (search for similar items in EconPapers)
Pages: 29
Date: 2009
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Working Paper: How Important are Peer Effects in Group Lending? Estimating a Static Game of Incomplete Information (2009) Downloads
Working Paper: How important are peer effects in group lending?: Estimating a static game of incomplete information (2009) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:ags:iaae09:51699

DOI: 10.22004/ag.econ.51699

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