The Power of Non-Monetary Incentive: Experimental Evidence from P2P Lending in China
53 Pages Posted: 24 Jun 2019 Last revised: 21 Jul 2019
Date Written: July 19, 2019
The adoption of reputational sanctions in the online P2P industry in China offers a unique opportunity to test the impact of reputational concerns on repayment behavior in a clean experimental setting. In a privately implemented randomized controlled trial, we test a novel reputation-based incentive both in parallel to and coupled with accommodative monetary incentives on the repayment decision of 18,000 late borrowers vis-à-vis ex-post reminders. Within 24 hours, we find that late borrowers are sensitive to the generosity of the monetary incentive but equally responsive to a warning of reporting delinquent behavior to others and a full late fee waiver. In joint schemes, the social incentive neutralizes the ts of increasing the generosity of the monetary incentive. Ex-post reminders are largely ineffective. Borrowers who respond to early incentives largely pay-off the loan on time. The social incentive affects repayment behavior through the power of a credible announcement.
Keywords: Peer-to-Peer Lending, Incentives, Loan Payments, Reputational Concerns, China
JEL Classification: G10, G23, O1
Suggested Citation: Suggested Citation