Familiarity Breeds Contagion

71 Pages Posted: 7 Jan 2020 Last revised: 27 May 2020

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Aditya Murlidharan

Indian School Of Business

Naman Nishesh

Indian School of Business

Prasanna L. Tantri

Indian School of Business

Date Written: May 23, 2020

Abstract

Using the Indian caste system and the group loan structure where members screen and monitor each other, we ask whether social ties impede or improve loan performance. The borrowers belonging to caste homogeneous groups default more not because of occupational similarity within castes. We rule out self-selection into caste homogeneous groups and easier coordination within castes leading to higher strategic defaults as explanations. Our results show that contagion arising due to social connections, independent of common occupational shocks, offsets informational and relationship advantages, resulting in more delinquencies. Accordingly, in sub-samples where caste based contagion is less likely, caste homogeneous groups actually default less.

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

JEL Classification: D82, G21, Z13

Suggested Citation

Agarwal, Sumit and Murlidharan, Aditya and Nishesh, Naman and Tantri, Prasanna L., Familiarity Breeds Contagion (May 23, 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)

Indian School of Business ( email )

Indian School of Busines
Gachibowli
Hyderabad, Telangana 500032
India
+91-7477799444 (Phone)

Prasanna L. Tantri

Indian School of Business ( email )

Hyderabad, Gachibowli 500 032
India
9160099959 (Phone)

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