Microfinance Games

Microfinance has been heralded as an effective way to address imperfections in credit markets. But from a theoretical perspective, 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. The authors created an experimental economics laboratory in a large urban market in Lima, Peru and over seven months conducted 11 different games that allow them to unpack microfinance mechanisms in a systematic way. They 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.

Bibliographic Details

Main Authors:	Jakiela, Pamela, Giné, Xavier, Karlan, Dean, Morduch, Jonathan
Language:	English
Published:	World Bank, Washington, DC 2006-07
Subjects:	ADVERSE SELECTION, AGENTS, BANKS, COMMERCIAL BANKS, CREDIT MARKETS, DEFAULT RISK, ECONOMICS, EXTERNALITIES, GAMES, INDUCEMENT, INSURANCE, INVENTORY, INVESTMENT CHOICES, JOINT LIABILITY, MICROFINANCE, MORAL HAZARD, PERFECT INFORMATION, PREPARATION, PROGRAMS, RATES, RECIPROCITY, RISK AVERSION, RISK OF DEFAULT, RISK TAKING, SAVINGS, SAVINGS ACCOUNTS, SIMULATIONS, SOCIAL COSTS, SOCIAL NETWORK, SOCIAL NETWORKS, TABLES,
Online Access:	http://documents.worldbank.org/curated/en/2006/07/6952807/microfinance-games https://hdl.handle.net/10986/8368
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