Referrals: Peer Screening and Enforcement in a Consumer Credit Field Experiment

Gharad T. Bryan, Dean Karlan and Jonathan Zinman

No 17883, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Empirical evidence on peer intermediation lags behind many years of lending practice and a large body of theory in which lenders use peers to mitigate adverse selection and moral hazard. Using a simple referral incentive mechanism under individual liability, we develop and implement a two-stage field experiment that permits separate identification of peer screening and enforcement effects. We allow for borrower heterogeneity in both ex-ante repayment type and ex-post susceptibility to social pressure. Our key contribution is how we deal with the interaction between these two sources of asymmetric information. Our method allows us to cleanly identify selection on the likelihood of repayment, selection on the susceptibility to social pressure, and loan enforcement. We estimate peer effects on loan repayment in our setting, and find no evidence of screening (albeit with an imprecisely estimated zero) and large effects on enforcement. We then discuss the potential utility and portability of the methodological innovation, for both science and for practice.

JEL-codes: C93 D12 D14 D82 O12 O16 (search for similar items in EconPapers)
Date: 2012-03
New Economics Papers: this item is included in nep-exp, nep-mfd and nep-soc
Note: CF LE LS
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published as Gharad Bryan & Dean Karlan & Jonathan Zinman, 2015. "Referrals: Peer Screening and Enforcement in a Consumer Credit Field Experiment," American Economic Journal: Microeconomics, vol 7(3), pages 174-204.

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Journal Article: Referrals: Peer Screening and Enforcement in a Consumer Credit Field Experiment (2015)
Working Paper: Referrals: peer screening and enforcement in a consumer credit field experiment (2015)
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