Publication: Microfinance Games
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2006-07
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2012-06-18
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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.
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“Jakiela, Pamela; Giné, Xavier; Karlan, Dean; Morduch, Jonathan. 2006. Microfinance Games. Policy Research Working Paper; No. 3959. © World Bank. http://hdl.handle.net/10986/8368 License: CC BY 3.0 IGO.”
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