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Microfinance Games

Author

Listed:
  • Gine, Xavier
  • Jakiela, Pamela
  • Karlan, Dean S.
  • Morduch, Jonathan
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.

Suggested Citation

  • Gine, Xavier & Jakiela, Pamela & Karlan, Dean S. & Morduch, Jonathan, 2006. "Microfinance Games," Center Discussion Papers 28520, Yale University, Economic Growth Center.
    • Handle: RePEc:ags:yaleeg:28520
    DOI: 10.22004/ag.econ.28520
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    References listed on IDEAS

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    More about this item

    Keywords

    Financial Economics;

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • D10 - Microeconomics - - Household Behavior - - - General
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments

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