Microfinance Games

46 Pages Posted: 20 Apr 2016

See all articles by Xavier Giné

Xavier Giné

World Bank - Development Research Group (DECRG)

Pamela Jakiela

University of Maryland

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)

Multiple version iconThere are 4 versions of this paper

Date Written: July 1, 2006

Abstract

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.

Keywords: Banks&Banking Reform, Insurance&Risk Mitigation, Financial Intermediation, Social Accountability, Civic Participation and Corporate Governance

Suggested Citation

Gine, Xavier and Jakiela, Pamela and Karlan, Dean S. and Karlan, Dean S., Microfinance Games (July 1, 2006). World Bank Policy Research Working Paper No. 3959, Available at SSRN: https://ssrn.com/abstract=921498

Xavier Gine (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

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HOME PAGE: https://sites.google.com/site/decrgxaviergine/

Pamela Jakiela

University of Maryland ( email )

College Park
College Park, MD 20742
United States

Dean S. Karlan

Yale University ( email )

Box 208269
New Haven, CT 06520-8269
United States

Northwestern University - Kellogg School of Management ( email )

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Evanston, IL 60208
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Innovations for Poverty Action ( email )

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New Haven, CT 20009
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Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab (J-PAL) ( email )

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United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Centre for Economic Policy Research (CEPR) ( email )

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United Kingdom

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