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

34 Pages Posted: 2 Mar 2012 Last revised: 14 May 2023

See all articles by Gharad Bryan

Gharad Bryan

London School of Economics & Political Science (LSE) - Department of Economics

Dean S. Karlan

Yale University; Northwestern University - Kellogg School of Management; Innovations for Poverty Action; Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab (J-PAL); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Jonathan Zinman

Dartmouth College; Innovations for Poverty Action; Jameel Poverty Action Lab; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: March 2012

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.

Suggested Citation

Bryan, Gharad and Karlan, Dean S. and Karlan, Dean S. and Zinman, Jonathan, Referrals: Peer Screening and Enforcement in a Consumer Credit Field Experiment (March 2012). NBER Working Paper No. w17883, Available at SSRN: https://ssrn.com/abstract=2014578

Gharad Bryan (Contact Author)

London School of Economics & Political Science (LSE) - Department of Economics ( email )

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Dean S. Karlan

Yale University ( email )

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Jonathan Zinman

Dartmouth College ( email )

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HOME PAGE: http://https://sites.dartmouth.edu/jzinman/

Innovations for Poverty Action

1731 Connecticut Ave, 4th floor
New Haven, CT 20009
United States

Jameel Poverty Action Lab

E60-246
77 Massachusetts Avenue
Cambridge, MA 02139
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States