The Power of Non-Monetary Incentive: Experimental Evidence from P2P Lending in China

53 Pages Posted: 24 Jun 2019 Last revised: 21 Jul 2019

See all articles by Francesca Brusa

Francesca Brusa

Temple University - Fox School of Business

Xueming Luo

Temple University

Zheng Fang

Sichuan University - Business School

Date Written: July 19, 2019

Abstract

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

Brusa, Francesca and Luo, Xueming and Fang, Zheng, The Power of Non-Monetary Incentive: Experimental Evidence from P2P Lending in China (July 19, 2019). Available at SSRN: https://ssrn.com/abstract=3405902 or http://dx.doi.org/10.2139/ssrn.3405902

Francesca Brusa (Contact Author)

Temple University - Fox School of Business ( email )

1801 Liacouras Walk
Alter Hall #426
Philadelphia, PA Pennsylvania 19122
United States
+12152046477 (Phone)

Xueming Luo

Temple University ( email )

1810 N. 13th Street
Floor 2
Philadelphia, PA 19128
United States

HOME PAGE: http://www.fox.temple.edu/mcm_people/xueming-luo/

Zheng Fang

Sichuan University - Business School ( email )

China

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