Able but Unwilling to Enforce: Cooperative Dilemmas in Group Lending

76 Pages Posted: 1 Nov 2018

See all articles by Nicholas Sabin

Nicholas Sabin

University of Oxford - Said Business School

Felix Reed-Tsochas

University of Oxford - Said Business School; University of Oxford - CABDyN Complexity Centre; Oxford Martin School

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 [Updated version of Said Business School WPs 2017-19 and 2014-9]. Available at SSRN: https://ssrn.com/abstract=3275526 or http://dx.doi.org/10.2139/ssrn.3275526

Nicholas Sabin (Contact Author)

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

University of Oxford - CABDyN Complexity Centre ( email )

Park End Street
Oxford, OX1 1HP
United Kingdom

HOME PAGE: http://www.cabdyn.ox.ac.uk/people_pages/complexity_people_reedtsochas.asp

Oxford Martin School ( email )

University of Oxford
34 Broad Street
Oxford, OX1 3BD
United Kingdom

HOME PAGE: http://www.oxfordmartin.ox.ac.uk/people/14

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