Familiarity Breeds Contagion

59 Pages Posted: 7 Jan 2020 Last revised: 15 Dec 2020

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Aditya Murlidharan

Indian School Of Business

Naman Nishesh

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

Prasanna L. Tantri

Indian School of Business

Date Written: December 10, 2020

Abstract

Although the impact of social ties on credit markets has been studied, the possibility of contagion through social ties remains unexplored. Examining the Indian caste system and the group loan structure, we find that social ties could turn shocks into a contagion within credit markets: a drought that directly impacts farmers leads to a higher default rate among non-farmers of the farming castes. We find such results even in more generalized settings. Using group X time fixed effects, we absorb the selection of groups by the borrowers. In the absence of negative shocks, consistent with superior information, caste networks outperform.

Keywords: Caste; Contagion; Social Networks; Group Loans; Information

JEL Classification: D82, G21, Z13

Suggested Citation

Agarwal, Sumit and Murlidharan, Aditya and Nishesh, Naman and Tantri, Prasanna L., Familiarity Breeds Contagion (December 10, 2020). Indian School of Business, Available at SSRN: https://ssrn.com/abstract=3509386 or http://dx.doi.org/10.2139/ssrn.3509386

Sumit Agarwal

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Aditya Murlidharan

Indian School Of Business ( email )

Hyderabad, Gachibowli 500 019
India
9650433150 (Phone)

Naman Nishesh (Contact Author)

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

McColl Building
South Campus, UNC
Chapel Hill, NC NC 27599-3490
United States

HOME PAGE: http://https://www.kenan-flagler.unc.edu/

Prasanna L. Tantri

Indian School of Business ( email )

Hyderabad, Gachibowli 500 032
India
9160099959 (Phone)

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