Able but Unwilling to Enforce: Cooperative Dilemmas in Group Lending

Posted: 2 Jul 2020

See all articles by Nicholas Sabin

Nicholas Sabin

Universidad de Santiago de Chile; University of Oxford - Said Business School

Felix Reed-Tsochas

University of Oxford - Said Business School

Multiple version iconThere are 2 versions of this paper

Date Written: October 30, 2018

Abstract

Under what structural conditions does the ability to enforce economic cooperation outweigh the
willingness to enforce? We derive a framework from sociological theory in which the structural
forces that mitigate the first-order cooperative dilemma may simultaneously exacerbate the second-order dilemma. We then examine how two dimensions of structural embeddedness, (1) structural cohesion and (2) disconnected subgroups, shape the behavior of microfinance clients in Sierra Leone. Group lending provides an ideal empirical cooperative dilemma: if one member does not repay, the others are held financially responsible. We complement statistical modelling with ethnographic analysis in a nested research design, the highest level including 5,582 repayments made by 1,884 borrowers. The results clarify how different group structures determine which alternative enforcement mechanisms are likely to dominate collective outcomes. We find that structural cohesion consistently increases economic cooperation to a point, beyond which unwillingness to punish outweighs the benefits of increased ability, resulting in worse group repayment. In contrast, groups that consist of disconnected subgroups are more willing to punish defectors in the out-subgroup. However, they are less able to effectively sanction and overall performance suffers.

Previous versions of this paper can be found at: https://ssrn.com/abstract=3060569 and http://ssrn.com/abstract=2465634.

Suggested Citation

Sabin, Nicholas and Reed-Tsochas, Felix, Able but Unwilling to Enforce: Cooperative Dilemmas in Group Lending (October 30, 2018). Saïd Business School WP 2018-17 [Previous version of SSRN ID No. 3579121. Updated version of Said Business School WP 2017-19 and Said Business School WP 2014-9.], Available at SSRN: https://ssrn.com/abstract=3275526 or http://dx.doi.org/10.2139/ssrn.3275526

Nicholas Sabin (Contact Author)

Universidad de Santiago de Chile

Avenida Libertador Bernardo O'Higgins 3363
Santiago
Chile

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

Felix Reed-Tsochas

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

HOME PAGE: http://www.sbs.ox.ac.uk/community/people/felix-reed-tsochas

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