Microfinance Games

46 Pages Posted: 20 Apr 2016  

Xavier Giné

World Bank - Development Research Group (DECRG)

Pamela Jakiela

University of Maryland

Dean S. Karlan

Yale University; Innovations for Poverty Action; Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Jonathan Morduch

New York University (NYU) - Robert F. Wagner Graduate School of Public Service; New York University (NYU) - Department of Economics

Multiple version iconThere are 4 versions of this paper

Date Written: July 1, 2006

Abstract

Microfinance has been heralded as an effective way to address imperfections in credit markets. But from a theoretical perspective, the success of microfinance contracts has puzzling elements. In particular, the group-based mechanisms often employed are vulnerable to free-riding and collusion, although they can also reduce moral hazard and improve selection. The authors created an experimental economics laboratory in a large urban market in Lima, Peru and over seven months conducted 11 different games that allow them to unpack microfinance mechanisms in a systematic way. They find that risk-taking broadly conforms to predicted patterns, but that behavior is safer than optimal. The results help to explain why pioneering microfinance institutions have been moving away from group-based contracts.

Keywords: Banks&Banking Reform, Insurance&Risk Mitigation, Financial Intermediation, Social Accountability, Civic Participation and Corporate Governance

Suggested Citation

Giné, Xavier and Jakiela, Pamela and Karlan, Dean S. and Morduch, Jonathan, Microfinance Games (July 1, 2006). World Bank Policy Research Working Paper No. 3959. Available at SSRN: https://ssrn.com/abstract=923266

Xavier Gine (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

HOME PAGE: https://sites.google.com/site/decrgxaviergine/

Pamela Jakiela

University of Maryland ( email )

College Park
College Park, MD 20742
United States

Dean S. Karlan

Yale University ( email )

Box 208269
New Haven, CT 06520-8269
United States

Innovations for Poverty Action ( email )

1731 Connecticut Ave, 4th floor
New Haven, CT 20009
United States

Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab ( email )

E60-246
77 Massachusetts Avenue
Cambridge, MA 02139
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Jonathan Morduch

New York University (NYU) - Robert F. Wagner Graduate School of Public Service ( email )

The Puck Building
295 Lafayette Street, Second Floor
New York, NY 10012
United States
(212) 998-7515 (Phone)

New York University (NYU) - Department of Economics ( email )

269 Mercer Street, 7th Floor
New York, NY 10011
United States

HOME PAGE: http://www.nyu.edu/projects/morduch

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