peer group formation in an adverse selection model this paper develops an adverse selection model where peer group systems are shown to trigger lower interest rates and remove credit rationing in the case where borrowers are uninformed about their potential partners and ex post state verification or auditing by banks is costly peer group formation reduces interest rates due to a collateral effect namely cross subsidisation amongst borrowers acts as collateral behind a loan by uncovering such a collateral effect this paper shows that peer group systems can be viewed as an effective risk pooling mechanism and thus enhance efficiency notjust in the full information set up a well known family of adverse selection models in the stiglitz and weiss 1981 tradition demonstrates that when banks are imperfectly informed about the riskiness of borrowers projects and therefore cannot discriminate against risky borrowers interest rates become inefficiently high and worthy borrowers are driven out of the credit market the extent of this problem is substantially magnified when borrowers do not have adequate collateral to secure a loan typically adverse selection combined with lack of collateral leads to prohibitively high interest rates poorly endowed individuals e g students immigrants the unemployed and a vast majority of poor individuals in developing countries often face such high rates and therefore cannot take advantage of profitable investment opportunities a peer group formation system represents a possible solution to the above problem under this system a bank lends to borrowers without collateral on condition that the borrowers organise themselves into groups and that participant borrowers within each group accept to take joint responsibility for a loan thus in addition to repaying their own share of the loan each group member must accept to repay the obligations of their defaulting peers otherwise the entire group is denied access to future refinancing systems of this kind have been very successful in practice they have generated lower interest rates for the rural poor in for example bangladesh the philippines bolivia and the state of arkansas in the united states moreover group lending has also been successfully implemented in large urban areas such in the cities of dhaka and chicago 1

microcredit what can we learn from the past abstract six microcredit organizations of 19th century europe are compared to identify what institutional designs were conducive to success and sustainability organizations that depended on charitable funding were more fragile and tended to lose their focus more quickly than those that obtained funds from depositors an ability to adjust interest rates also appears important in sustainability examining historical microcredit is particularly useful since it offers an opportunity to explore the characteristics of organizations which were sustained over many decades a perspective which is rare in modern microcredit banks and programs most of which are less than 15 years old

learning about a new technology pineapple in ghana this paper investigates the role of social learning in the diffusion of a new agri cultural technology in ghana we use unique data on farmers communication patterns to define each individual s information neighborhood conditional on many potentially confounding variables we find evidence that farmers adjust their inputs to align with those of their information neighbors who were surpris ingly successful in previous periods the relationship of these input adjustments to experience further indicates the presence of social learning in addition applying the same method to input choices for another crop of known technol ogy correctly indicates an absence of social learning effects jel d83 013 033 q16

the microfinance promise in the past decade microfinance programs have demonstrated that it is possible to lend to low income households while maintaining high repayment rates even without requiring collateral the programs promise a revolution in approaches to alleviating poverty and spreading financial services and millions of poor households are served globally a growing body of economic theory demonstrates how new contractual forms offer a key to microfinance success particularly the use of group lending contracts with joint liability for the most part however high repayment rates have not translated into profits and studies of impacts on poverty yield a mixed picture in describing emerging tensions the paper highlights the diversity of innovative mechanisms beyond group lending contracts the measurement of financial sustainability the estimation of economic and social impacts the costs and benefits of subsidization and the potential to reduce poverty through savings programs rather than just credit the promise of microfinance has pushed far ahead of the evidence and an agenda is put forward for addressing critical empirical gaps and sharpening the terms of policy discussion

group lending repayment incentives and social collateral abstract in this paper we investigate the impact on repayment rates of lending to groups which are made jointly liable for repayment this type of scheme especially in the guise of the grameen bank in bangladesh has received increasing attention we set up and analyze the repayment game which group lending gives rise to our analysis suggests that such schemes have both positive and negative effects on repayment rates the positive effect is that successful group members may have an incentive to repay the loans of group members whose projects have yielded insufficient return to make repayment worthwhile the negative effect arises when the whole group defaults even when some members would have repaid under individual lending we also show how group lending may harness social collateral which serves to mitigate its negative effect

the supply and demand side impacts of credit market information abstract we utilize a unique pair of experiments to isolate the ways in which reductions in asymmetric information alter credit market outcomes a guatemalan microfinance lender gradually started using a credit bureau across its branches without letting borrowers know about it one year later we ran a large randomized credit information course that described the existence and workings of the bureau to the clients of this lender this pairing of natural and randomized experiments allows us to separately identify how new information enters on the supply and the demand sides of the market our results indicate that the credit bureau generated large efficiency gains for the lender and that these gains were augmented when borrowers understood the rules of the game the credit bureau rewarded good borrowers but penalized weaker ones increasing economic differentiation

behavioural development economics lessons from field labs in the developing world abstract explanations of poverty growth and development depend on the assumptions made about individual preferences and the willingness to engage in strategic behaviour economic experiments especially those conducted in the field have begun to paint a picture of economic agents in developing communities that is at variance with the traditional portrait we review this growing literature with an eye towards preference related experiments conducted in the field we also offer lessons on what development economists might learn from experiments we conclude by sharing our thoughts on how to conduct experiments in the field and then offer a few ideas for future research

u s reits as an asset class in international investment portfolios an examination of u s real estate investment trust reit efficiency as a portfolio component from the perspective of all g 7 countries for the period 1985 through 1994 indicates that u s reits offer both an inflation hedge and diversification nevertheless including reits in test portfolios did not yield statistically significant increases in risk adjusted return over the period as a whole subperiod analyses indicated large temporal differences in reit efficiency as a portfolio component

financial intermediation and endogenous growth an endogenous growth model with multiple assets is developed agents who face random future liquidity needs accumulate capital and a liquid but unproductive asset the effects of introducing financial intermediation into this environment are considered conditions are provided under which the introduction of intermediaries shifts the composition of savings toward capital causing intermediation to be growth promoting in addition intermediaries generally reduce socially unnecessary capital liquidation again tending to promote growth

social networks and technology adoption in northern mozambique despite their potentially strong impact on poverty agricultural innovations are often adopted slowly using a unique household dataset on sunflower adoption in mozambique we analyse whether and how individual adoption decisions depend upon the choices of others in the same social networks since farmers anticipate that they will share information with others we expect farmers to be more likely to adopt when they know many other adopters dynamic considerations however suggest that farmers who know many adopters might strategically delay adoption to free ride on the information gathered by others we present empirical evidence that shows that the relationship between the probability of adoption and the number of known adopters is shaped as an inverse u in line with information sharing the network effect is stronger for farmers who report discussing agriculture with others the data contains information which is needed to ameliorate the identification issues that commonly arise in this context in particular social networks are precisely identified and in addition we can control for village heterogeneity and endogenous group formation

the empirics of microfinance what do we know microfinance has received a lot of attention recently both from policy makers as well as in academic circles two of the main topics that have been hotly debated are explaining joint liability group lending and its implications for reducing information asymmetries and the trade off between the financial sustainability and outreach of microfinance programmes this feature contains three novel empirical contributions providing new insights with respect to why and how joint liability group lending works it also contains the first large scale systematic analysis of the trade off between financial performance and outreach of microfinance institutions

the role of subsidies in microfinance evidence from the grameen bank the grameen bank of bangladesh has been in the vanguard of the microfinance movement showing the potential to alleviate poverty by providing credit to poor house holds part of this success has been built on subsidies in 1996 for example total subsidies evaluated at the economic opportunity cost of capital amounted to about us 26 30 million the evidence helps to explain why institutions like grameen have not just sprung up on their own as private commercial ventures and it underscores the value of openly addressing the costs and benefits of subsidization the paper also describes recent difficulties in maintaining high repayment rates q 1999 elsevier science b v all rights reserved

assessing the case for social experiments rs ecent academic debates pit two alternative approaches to policy evaluation against one another the first is the experimental approach based on the random assignment of accepted program applicants to a recipient or treatment group and a non recipient or control group the second is the nonexperimental or econometric approach that uses a variety of microdata sources statistical methods and behavioral models to compare the outcomes of participants in social programs with those of nonparticipants the central question addressed in this paper is whether or not randomized social experiments aid in securing answers to basic questions about the evaluation of social programs there are many distinct and complementary approaches to the study of the impact of public policy including full general equilibrium analysis of policy impacts tinbergen 1956 auerbach and kotlikoff 1987 shoven and whalley 1992 kydland and prescott 1991 and less ambitious partial equilibrium microeconomic structural research programs such as those designed to estimate the impact of taxes on labor supply both approaches offer answers to many interesting counterfactual policy questions but their credibility rests critically on the quality of the empirical input used to generate their answers

state intervention and the microcredit market the role of business development services we analyze in this paper how various forms of state intervention can impact microfinance institutions lending behavior using a simple model where entrepreneurs receive individual uncollateralized loans we show that not surprisingly state intervention through the loan guarantee increases the number of entrepreneurs receiving a loan however after modeling business development services bds provided by the microfinance institution we show that the loan guarantee can have a counterproductive effect by reducing the number of entrepreneurs benefiting from such services we therefore analyze an alternative policy bds subsidization we show that if bds are efficient enough and are targeted toward less performing borrowers then for fixed government expenditures such subsidies do better in terms of financial inclusion than the loan guarantee moreover we argue that under similar conditions bds subsidization alone does better in terms of financial inclusion than a mix of policies

does international diversification work better for real estate than for stocks and bonds international diversification is now an established fact for stock and bond portfolios for real estate shares however this acceptance has so far not been the case this study is an investigation of the effectiveness of international real estate diversification relative to international diversification of stock and bond portfolios tests of international correlation matrixes of real estate returns common stock returns and bond returns indicate significantly lower correlations between national real estate returns than between common stock or bond returns the implication is that international diversification reduces the risk of a real estate portfolio more than that of common stock and bond portfolios

enabling the original intent catalysts for social entrepreneurship as capitalist economies have shifted their primary focus from providing goods and services for all to concentrating wealth at the top echelons of societies social entrepreneurs have been one source of re capturing the original intent of capitalism social entrepreneurs have combined the efficiency and effectiveness of business organizations with the social concerns of many non profit and governmental agencies as a result social entrepreneurship is viewed as having significant potential for alleviating many of the social ills we now face to accomplish this mission however will require expansion of social enterprises beyond their current footprints we explore alternate methods of expansion scaling and replication and then examine potential catalysts which can enable social entrepreneurs to attain their goals of social improvement the catalysts we identify are effectual logic enhanced legitimacy through appropriate reporting metrics and information technology we conclude with two brief case studies that exemplify how these catalysts are currently working to enhance the effectiveness of social start ups

strategic interaction in undeveloped credit markets abstract this paper studies the strategic interaction between informal and formal lenders in undeveloped credit markets in a model with adverse selection loan seniority market power and differences in the cost of lending it is shown that under general conditions a co funding equilibrium will be a nash outcome of the game we demonstrate that a collateral requirement in connection with formal loans always generates a new co funding equilibrium in which both lenders earn higher profits a government subsidy to the formal lender may have the opposite effect we relate our results to existing empirical evidence and the emerging discussion of how to best ensure financial viability and outreach of microfinance institutions

symbiosis vs crowding out the interaction of formal and informal credit markets in developing countries abstract it is a common observation in many developing countries that enterprises are active borrowers in both formal and informal credit markets we propose a model in which the formal sector s superior ability in deposit mobilization is traded off against the informational advantage that lenders in the informal sector enjoy the formal sector can screen borrowers by providing only partial financing for projects thereby forcing borrowers to resort to the informal sector for the remainder of the loan we use the model to predict how the market structure responds to changes in the environment and we consider the policy implications of various forms of government intervention

spatial spillovers in the development of institutions abstract we examine spatial spillovers in institutional development dependent variables are institutional measures reflecting politics law and governmental administration the explanatory variable of interest is the level of institutions in bordering countries a spatial lag of the dependent variable our spatial model directly leads to the identification strategy for the endogenous spatial lag we implement new results in spatial econometrics to counter missing data problems usually rife in spatial empirics spatial institutional spillovers are statistically significant and economically important a counter factual exercise the non existence of the ussr reveals large direct and indirect spillovers numerous robustness exercises bolster conclusions including yearly cross section regressions fixed effects estimates and adding many extra explanatory variables moreover we provide a new theoretical result showing the robustness of estimates in the presence of omitted variables we extend the core model allowing different effects for better and worse neighbors using inverse distance weights estimating the spatial durbin model and using polity s institutional measure

microcredit and the poorest of the poor theory and evidence from bolivia abstract we construct a theoretical framework that describes the social worth of a microfinance organization in terms of the depth worth to users cost to users breadth length and scope of its output we then analyze evidence of depth of outreach for five microfinance organizations in bolivia most of the poor households reached by the microfinance organizations were near the poverty line they were the richest of the poor group lenders had more depth of outreach than individual lenders the urban poorest were more likely to be borrowers but rural borrowers were more likely to be among the poorest

dea and sfa research on the efficiency of microfinance institutions a meta analysis microfinance has played a key role in the fight against exclusion and the promotion of entrepreneurship in developing countries an important question today is how to increase the reach and profitability of microfinance in a context where subsidies are withdrawing to promote the viability and sustainability of microfinance institutions mfis efficiency analysis has found favor in this context and has attracted growing interest among professionals partners and researchers abundant empirical work has been conducted over the last ten years on this subject in very different contexts and with different methodologies the purpose of this article is to provide a meta regression analysis on parametric and nonparametric estimations of mean technical efficiency mte in microfinance using a data set of 262 observations from 38 studies the results show that in the microfinance industry mte scores have increased over time however with an mte rate of approximately 61 1 there is room for improving efficiency mfis use more resources than necessary for the results achieved in terms of outreach and revenue generated our results show heterogeneity of mte according to the methodological approach of the studies studies with a larger number of variables inputs and outputs produced higher mte scores than did those with a smaller number of variables studies using the variable returns to scale assumption resulted in higher mte scores than those using constant returns to scale in addition those with a production approach had higher mtes than did those using the intermediation approach while studies of a large number of mfis had lower scores than did those involving a small sample size moreover research estimating social efficiency generated lower mtes compared to those estimating financial efficiency studies using data from african mfis obtained lower mtes than did those on mfis in latin america and mena which confirms the poor performance of african microfinance

microfinance its impact outreach and sustainability summary this symposium brings together recent empirical contributions with respect to a number of related and highly relevant issues on the economics of microfinance in particular the contributions provide answers to the following two main questions 1 does microfinance have an impact on the social and economic situation of the poor in developing nations and 2 are microfinance institutions sustainable in the long term and is there a trade off between sustainability and outreach

neighborhood effects and social behavior the case of irrigated and rainfed farmers in bohol the philippines artifactual field experiments spatial econometrics and household surveys are combined in a single study to investigate the neighborhood effects of social behaviors the dictator and public goods games are conducted among rice farmers in irrigated and non irrigated areas in the philippines we find the neighborhood effects but the magnitude and statistical significance of endogenous social effects vary with the irrigation availability type of social behavior and type of neighborhood altruistic and cooperative behaviors are significantly influenced by the behaviors of neighbors only in the irrigated area where social ties are strengthened through collective irrigation management through this effect irrigated farmers social behaviors become similar to those of one another neighborhood effects for cooperative behavior are stronger among farm plot neighbors than among residential neighbors which may reflect their interactions in irrigation management although non dynamic these findings are consistent with the theory of social norm evolution through common pool resource management

gender biases in bank lending lessons from microcredit in france the evidence on gender discrimination in lending remains controversial to capture gender biases in banks loan allocations we observe the impact on the applicants of a microfinance institution mfi and exploit the natural experiment of a regulatory change imposing a strict eur 10 000 loan ceiling on microcredit descriptive statistics indicate that the presence of the ceiling is associated both with bank mfi co financing and with harsher treatment of female borrowers to investigate causal links we develop an econometric approach that addresses the concerns of selection biases multicollinearity and endogeneity our empirical findings suggest that the change in the mfi s gender related attitude was triggered by banks through co financing hence we speculate that co financing pushes ceiling constrained mfis to import whatever biases in loan granting that the banks are prone to overall this paper stresses that apparently benign regulations such as loan ceilings can significantly harm the women s empowerment efforts made by mfis

the use of village agents in rural credit delivery using a simple principal agent model this article examines the incentive problems that arise when a formal financial institution such as a rural bank utilises a member of the rural community to act as an agent in screening potential borrowers and collecting repayment optimal compensation schemes are derived for the agent and their implications are discussed in addition i show that the norms and rules that govern village life may aid the financial institution by helping to constrain possible strategic behaviour by the agent

unsubsidized microfinance institutions this paper starts from the observation that 23 of the world s microfinance institutions mfis manage without subsidies we examine how unsubsidized institutions cope with their social mission overall the lack of subsidies worsens social performances however our results show that strategies to achieve financial self sufficiency differ substantially across regions african and asian mfis compensate for non subsidization by charging higher interest rates in eastern europe and central asia unsubsidized mfis find it more suitable to target less poor clients unsubsidized latin american mfis tend to reduce their share of female borrowers

investing in international real estate stocks a review of the literature this paper summarises the various findings of studies completed on the benefits of international diversification using real estate stocks with the increased availability of data and analytical tools the quantity and variety of work over the past decade have increased dramatically in this area the first two sections of the paper chronologically review the studies focusing on how the diversification benefits are analysed in a mixed asset portfolio context or a real estate only portfolio context the third section highlights work that uses alternative analyses to the traditional mean variance framework to examine the international real estate stock as an investment alternative almost all of the studies reach the same conclusion diversification gains are possible but are often reduced if currency risk is included in the analysis

microenterprise credit programs deja vu abstract microenterprises in low income countries are the target of an increasing number of credit programs these efforts resemble earlier problematic attempts to assist operators of small farms with credit similarities discussed include target group definition assumptions policies and project justifications authors go on to list a dozen lessons from the experience with small farmer credit that might apply to microenterprise credit efforts authors then conclude that debt is not an effective tool for helping most poor people to enchance their economic conditions be they operators of small farms or microenterprises

income smoothing and consumption smoothing one way that risk averse households protect consumption levels is to borrow and use insurance mechanisms another way common in low income economies is to diversify economic activities and make conservative production and employment choices households thus tend toward limiting exposure only to shocks that can be handled with available credit and insurance typically both types of mechanisms are studied independently but much more can be learned by studying them together first we obtain a more complete picture of risks costs and insurance possibilities second it opens the way to considering biases in standard tests of credit and insurance

the profit orientation of microfinance institutions and effective interest rates summary with the rise in the number of for profit microfinance institutions mfis commentators are asking whether the sector benefits by mfis having stronger profit orientations we address this question by analyzing the relationship between interest rates and adopting the for profit legal form appointing private sector representation and traditional banking experience to advisory boards and participating in more extensive for profit networks the results consistently indicate that a stronger for profit orientation corresponds with higher interest rates for mfi clients however this does not contribute to greater profitability and therefore sustainability because the stronger profit orientation is also associated with higher mfi costs

cooperation in community interaction without information flows we study cooperative behaviour in communities where the flow of information regarding past conduct is limited or missing players are initially randomly matched with no knowledge of each other s past actions they endogenously decide whether or not to continue the repeated relationship there is incomplete information regarding player types a subset of the population is myopic while the remainder have discount factors that permit cooperation in principle we define social equilibrium in such communities such equilibria are characterized by an initial testing phase followed by cooperation if the test is successful it is precisely the presence of myopic types that permit cooperation by raising barriers to entry into new relationships we examine the implications of increased patience which takes two forms an increase in the number of non myopic types and an increase in the discount factor of non myopic types these two notions turn out to have strikingly different implications for the degree of cooperation that can be sustained

social connections and group banking lending to the poor is expensive due to high screening monitoring and enforcement costs group lending advocates believe lenders overcome this by harnessing social connections using data from finca peru i exploit a quasi random group formation process to find evidence of peers successfully monitoring and enforcing joint liability loans individuals with stronger social connections to their fellow group members i e either living closer or being of a similar culture have higher repayment and higher savings furthermore i observe direct evidence that relationships deteriorate after default and that through successful monitoring individuals know who to punish and who not to punish after default

understanding the soft budget constraint we propose a clarification of the notion of a soft budget constraint a concept widely used in the analysis of socialist transitional and market economies our interpretation is broad enough to embrace most existing approaches to soft budget constraint phenomena and provides a classification of their causes and consequences in light of this interpretation we then review the theoretical literature on the subject and compare it with those on other dynamic commitment problems in economics

exchange rate uncertainty forward contracts and international portfolio selection in this paper ex ante efficient portfolio selection strategies are developed to realize potential gains from international diversification under flexible exchange rates it is shown that exchange rate uncertainty is a largely nondiversiflable factor adversely affecting the performance of international portfolios therefore it is essential to effectively control exchange rate volatility for that purpose two methods of exchange risk reduction are simultaneously employed multicurrency diversification and hedging via forward exchange contracts the empirical findings show that international portfolio selection strategies designed to control both estimation and exchange risks almost consistently outperform the u s domestic portfolio in out of sample periods since grubel 11 applied modern portfolio theory mpt to international investment various authors such as levy and sarnat 17 solnik 20 and lessard 16 have examined the gains from international diversification of investment portfolios for the purpose of establishing the gains from international diversification these studies constructed international portfolios using historical risk and return data from a period of fixed or relatively stable exchange rates and showed that internationally diversified portfolios dominated purely domestic portfolios in terms of mean variance efficiency from the standpoint of today s investors however the previous studies fail to offer operational guidance for international diversification for two important reasons first it is now questionable whether the past findings are still relevant under the current flexible exchange rate regime second by being ex post in nature the past studies ignored the issue of estimation risk or parameter uncertainty and therefore may have overstated the realizable portion of the potential gains from international diversification fluctuating exchange rates are likely to mitigate the potential gains from international diversification by making investment in foreign securities more risky as will be shown later a fluctuating exchange rate contributes to the risk of foreign investment not only through its own variance but also through its positive covariances with the local stock market returns during our sample period of 1980 through 1985 for example exchange rate volatility is found to account for about fifty percent of the volatility of dollar returns from investment in the stock markets of such major countries as germany japan and the u k furthermore the exchange rate changes vis a vis the u s dollar are found to be

optimal partial group liability in microfinance lending abstract this paper develops a model of group borrowing that incorporates partial group liability where borrowers are penalized if their group members default but are not held responsible for the entirety of the failed loan the model illustrates a trade off of group liability lending while higher levels of group liability increase within group risk sharing if liability is too high borrowers strategically default the model predicts the existence of an optimal partial liability that maximizes transfers between group members while avoiding strategic default consistent with this prediction loan officers from a large microfinance institution in southern mexico who rarely allow one group member to repay while the other defaults achieve substantially lower default rates than loan officers for whom the practice is commonplace or for those for whom it has never occurred structural estimation using repayment data suggests that while a partial liability below full liability may reduce default rates the incidence of strategic default is rare

ethnicity and credit in african manufacturing abstract this paper investigates whether market interaction can by itself perpetuate the lack of ethnic diversity that is observed in the business communities of many developing countries using case study data on manufacturing firms in kenya and zimbabwe we find no evidence that blacks or women are disadvantaged in the attribution of bank credit once we control for firm size and other observable characteristics in contrast an ethnic and gender bias is noticeable in the attribution of supplier credit although we cannot rule out the presence of discrimination the bulk of the evidence indicates that network effects play an important role in explaining this bias

village banking and maternal and child health evidence from ecuador and honduras abstract many microcredit institutions bundle credit with health education or other programs this paper reviews arguments on such tie ins and concludes that net benefits are possible but requires empirical testing quasi experimental data from project hope s health banks and credit only village banks are then examined the paper presents evidence that health practices do not improve automatically with greater wealth in honduras results show that health bank participation is robustly associated with reduced subsequent conditional child diarrhea probability but in no specification does credit only bank participation have this effect in ecuador results suggest a larger effect of credit only banks in both countries health bank participation significantly raises subsequent healthcare over credit only participation and at least reduces the tendency to switch from breast feeding to bottle feeding as income rises effects on expenditures are ambiguous there is no clear link between tie ins and bank performance

microfinance and dynamic incentives dynamic incentives where incentives to repay are generated by granting access to future loans is one of the methodologies used by microfinance institutions mfis in this paper i present a model of dynamic incentives where lenders are uncertain over how much borrowers value future loans loan terms are determined endogenously and loans become more favorable as the probability of default becomes lower i show that in all equilibria but one all borrowers default including the most patient ones i then compare equilibria with and without double dipping i show that when credit constrained borrowers have access to multiple loans equilibrium loan terms have to become more favorable to overcome increased gains from default if borrower s access to multiple loans is unforseen by lenders then the default rates go up in the short run finally if lenders use group loans it generates endogenous hyperbolic discounting even though the borrowers are exponential discounters

moneylenders and bankers price increasing subsidies in a monopolistically competitive market abstract in many areas of the world a significant part of the cost of obtaining a good or service is the cost of enforcing the contracts entailed in its provision we present models of markets with endogenous enforcement costs motivated by studies of rural credit markets we show that subsidies may have perverse effects under monopolistic competition increasing prices or inducing exit higher prices interest rates result from the loss of scale economies or from negative externalities among suppliers the models are consistent with the puzzling evidence that infusions of government subsidized formal credit have not improved the terms offered by moneylenders

irrigation as a historical determinant of social capital in india a large scale survey analysis summary it is widely understood that the same policy interventions can have different outcomes depending on the social structures they are implemented in much less clear though is what fundamentally determines communities social capital or the way individuals in a society interact this study analyzes how irrigation practices a key feature of agricultural organization in india affect different indicators of social capital to this end an informative household survey is combined with detailed historical agricultural statistics on irrigation and grain cultivation the depth of the datasets allows for fine grained analysis of effects of different kinds of irrigation on groups with varying degrees of involvement in the agricultural production process i show a significant negative influence of specific types of irrigation on the prevalence of conflict and an increased likelihood for attendance of public meetings yet it is not possible to establish a broad and consistent relationship between agricultural indicators and social capital which contradicts previous research furthermore specific groups with varying incentive structures based on their land holding status and agricultural engagement appear to be affected by different kinds of irrigation the results underline the need for a multidimensional analysis of both social capital and agricultural organization as well as their interaction i do not find evidence supporting the rice theory of culture

in search of homo economicus behavioral experiments in 15 small scale societies we can summarize our results as follows first the canonical model is not supported in any society studied second there is considerably more behavioral variability across groups than had been found in previous cross cultural research and the canonical model fails in a wider variety of ways than in previous experiments third group level differences in economic organization and the degree of market integration explain a substantial portion of the behavioral variation across societies the higher the degree of market integration and the higher the payoffs to cooperation the greater the level of cooperation in experimental games fourth individual level economic and demographic variables do not explain behavior either within or across groups fifth behavior in the experiments is generally consistent with economic patterns of everyday life in these societies

social interactions in asset allocation decisions evidence from 401 k pension plan investors abstract this paper investigates social interaction effects on individual asset allocation decisions using a rich dataset of 159 329 individuals enrolled in 401 k plans we find that individuals are likely to increase decrease their risk shares when their coworkers have higher lower risk exposures over the last quarter the social interaction effects are especially strong among individuals with extreme asset allocations and low equity investment performance we also divide the workplaces into subgroups to examine how social interaction effects vary among coworkers with different backgrounds results from additional tests indicate that estimated social interaction effects are not primarily driven by common preferences common environments or reverse causality

thy neighbor s keeper the design of a credit cooperative with theory and a test economists now appreciate that resource allocation in less economically developed economies is profoundly influenced by non firm economic institutions however our theories of non firm institutions often suggest different answers to many questions including those of policy this paper illustrates a method for discriminating between alternative theories using data from german credit cooperatives from the nineteenth and early twentieth century germany we build a model of credit cooperatives designed to provide monitoring incentives and test this using nineteenth century data authors

the economics of rotating savings and credit associations supported by the center for energy policy studies m i t and the japanese corporate associates program at the kennedy school of government

here today gone tomorrow can dynamic incentives make microfinance more flexible this paper presents a model of microfinance lending to individuals that uses dynamic incentives in the form of access to additional loans to discourage borrowers from strategic default or the unwillingness to repay a loan once a positive outcome is realized we propose an improvement on contracts currently used by microfinance institutions mfis by endogenizing the default penalty while constraining the mfi to maintain sustainable lending operations furthermore accounting for the risks that the poor face by including a negative economic shock we show that under certain circumstances the punishment for default need not be a lifetime without loans

determinants of the performance of microfinance institutions a systematic review microfinance institutions mfis generally aim at improving the access of the poor to financial services while at the same time being financially sustainable but what do we know about how mfis reach and combine these two goals we carry out a systematic review of close to 170 papers discussing the determinants of the financial and social performance of mfis the review shows that the most important determinants addressed in the literature are mfi characteristics size age and type of organization their funding sources the quality of organizational governance and the mfis external context such as macro economic institutional and political conditions the evidence on these issues is rather mixed moreover the direction of the relationship between these drivers and mfi performance depends on the context particularly the country specific context finally there is a lack of consensus in the literature on the measurement of financial and social performance due to the complexity of the concept we argue that social performance should only be assessed by using a multidimensional perspective this can be done either by applying recent and holistic social performance measures such as the spi4 or at least by using a combination of proxies such as outreach gender and rural measures

credit and efficiency in centralized and decentralized economies we study a credit model where because of adverse selection unprofitable projects may nevertheless be financed indeed they may continue to be financed even when shown to be low quality if sunk costs have already been incurred we show that credit decentralization offers a way for creditors to commit not to refinance such projects thereby discouraging entrepreneurs from undertaking them initially thus decentralization provides financial discipline nevertheless we argue that it puts too high a premium on short term returns the model seems pertinent to two issues soft budget constraint problems in centralized economies and differences between anglo saxon and german japanese financing practices

on the efficiency effects of subsidies in microfinance an empirical inquiry summary using an original database of rating agencies this paper gives empirical evidence on the impact of subsidy intensity on the efficiency of microfinance institutions mfis we find that subsidies have had a positive impact on efficiency in the sense that mfis that received subsidies are more efficient than those that do not however we find also that subsidization beyond a certain threshold renders the marginal effect on efficiency negative in our sample 26 of mfis receive levels of subsidization higher than that threshold which implies that a marginal cut on subsidy intensity would increase their efficiency

micro credit initiatives for equitable and sustainable development who pays abstract there is a growing acknowledgement that micro credit programs have potential for equitable and sustainable development however my anthropological research on the micro credit program of the grameen bank shows that bank workers are expected to increase disbursement of loans among their members and press for high recovery rates to earn profit necessary for economic viability of the institution to ensure timely repayment in the loan centers bank workers and borrowing peers inflict an intense pressure on women clients in the study community many borrowers maintain their regular payment schedules through a process of loan recycling that considerably increases the debt liability on the individual households increases tension and frustration among household members produces new forms of dominance over women and increases violence in society

can social cohesion be harnessed to repair market failures evidence from group lending in guatemala the success of group lending in developing countries has been attributed to the ability of the institution to mitigate asymmetric information problems in credit markets previous research has offered a number of explanations for this phenomenon social ties between borrowing group members internal group pressure to repay loans and peer monitoring this research presents empirical tests on borrowing group data from guatemala which indicate that peer monitoring significantly effects borrowing group performance through stimulating intra group insurance group pressure is found to have a small effect in deterring moral hazard while the effect of social ties among members is statistically insignificant

peer monitoring and credit markets a major problem for institutional lenders is ensuring that borrowers exercise prudence in the use of the funds so that the likelihood of repayment is enhanced one partial solution is peer monitoring having neighbors who are in a good position to monitor the borrower be required to pay a penalty if the borrower goes bankrupt peer monitoring is largely responsible for the successful financial performance of the grameen bank of bangladesh and of similar group lending programs elsewhere but peer monitoring has a cost it transfers risk from the bank which is in a better position to bear risk to the cosigner in a simple model of peer monitoring in a competitive credit market this article demonstrates that the transfer of risk leads to an improvement in borrowers welfare

economic incentives and conservation crowding in social norms in a groundwater commons abstract price based interventions can be corrective where users extract from a common resource but may also impact existing social norms often crowding them out in contrast i find a pumping fee implemented by a group of irrigators in southern colorado effectively crowds in pro conservation norms enhancing the financial incentive s impact using a unique spatially oriented panel data set of groundwater wells i separate the direct role of increased pumping costs from the indirect effect transmitted through altered conservation norms to quantify conservation behavior i estimate how pumping at one well responds to pumping at nearby wells using instrumental variables to address simultaneity bias and interact that behavior with a difference in difference framework to assess the influence of the intervention in the preferred specification the fee directly accounts for approximately 74 of the reduced pumping and the remaining 26 comes from crowding in conservation norms

neighbors and extension agents in ethiopia who matters more for technology adoption improving agricultural productivity is seen as vital to economic growth in poor countries particularly in sub saharan africa where productivity growth has lagged behind that of other continents the focus has therefore been on new technologies particularly the adoption and diffusion of improved seed varieties and the increased use of fertiliser supported by investments in effective extension services it is important to understand how these new technologies spread and the effectiveness of extension services in this process

competition and incentives with motivated agents a unifying theme in the literature on organizations such as public bureaucracies and private nonprofits is the importance of mission as opposed to profit as an organizational goal such mission oriented organizations are frequently staffed by motivated agents who subscribe to the mission this paper studies incentives in such contexts and emphasizes the role of matching the mission preferences of principals and agents in increasing organizational efficiency matching economizes on the need for high powered incentives it can also however entrench bureaucratic conservatism and resistance to innovations the framework developed in this paper is applied to school competition incentives in the public sector and in private nonprofits and the interdependence of incentives and productivity between the private for profit sector and the mission oriented sector through occupational choice jel d23 d73 h41 l31 the late twentieth century witnessed a historic high in the march of market capitalism with unbridled optimism in the role of the profit motive in promoting welfare in the production of private goods moreover this generated a broad consensus on the optimal organization of private good production through privately owned competitive firms when it comes to the provision of collective goods no such consensus has emerged debates about the relative merits of public and private provision still dominate this paper suggests a contracting approach to the provision of collective goods it focuses on two key issues how to structure incentives and the role of competition between providers at its heart is the idea that organizations that provide collective goods cohere around a mission 2 thus production of collective goods can be viewed as mission oriented

social capital human capital and the community mechanism toward a conceptual framework for economists abstract for facilitating the development of a consensus on the concept of social capital among economists this paper proposes its operational definition in a way consistent with the definitions of physical and human capital and discusses the relevance on the use of the metaphor of capital for social capital further the unique characteristics in the production and accumulation of social capital in comparison with physical and human capital are identified in relation with the community which is considered the central mechanism to produce social capital the merits and drawbacks of the community relative to the market and the state are examined with the aim of identifying the conditions under which social capital can be supplied efficiently in the direction of promoting economic progress

identification of endogenous social effects the reflection problem this paper examines the reflection problem that arises when a researcher observing the distribution of behaviour in a population tries to infer whether the average behaviour in some group influences the behaviour of the individuals that comprise the group it is found that inference is not possible unless the researcher has prior information specifying the compisition of reference groups if this information is available the prospects for inference depend critically on the population relationship between the variables defining reference groups and those directly affecting outcomes inference is difficult to implossible if these variables are functionally dependent or are statistically independent the prospects are better if the variables defining reference groups and those directly affecting outcomes are moderately related in the population

the persistence of treatment effects with norm based policy instruments evidence from a randomized environmental policy experiment during a 1977 fireside chat president jimmy carter famously appealed to american hom eowners to set their thermostats at 65 degrees to help conserve supplies of natural gas and fuel oil norm based strategies are commonly used to influence a range of private behaviors with public consequences including alcohol and drug use gambling and resource consump tion in the last decade these strategies increas ingly emphasize the use of social comparisons to motivate behavioral changes efforts to use such comparisons build upon leon festinger s 1954 social comparison theory which posits that individuals validate the appropriateness of an action or thought through comparison to others a subsequent literature in social psychol ogy argues that strategies based on this theory provide an effective means to promote environ mental conservation see e g tim kurz ngaire donaghue and ian walker 2005 p wesley schultz et al 2007 noah j goldstein robert b cialdini and vladas griskevicius 2008 jessica m nolan et al 2008 in this literature the work by schultz et al 2007 has proven most influential and forms the basis of opower s well cited social comparison approach for

repayment performance in group based credit programs in bangladesh an empirical analysis abstract this paper analyzes the repayment rates of 128 credit groups belonging to three group based credit programs in bangladesh the association for social advancement asa the bangladesh rural advancement committee brac and the rangpur dinajpur rural service rdrs using tobit analysis specific tests are performed on the following hypothesized determinants group size size of loans degree of loan rationing enterprise mix within groups demographic characteristics social ties and status and occurrence of idiosyncratic shocks the paper concludes that if basic principles of prudential banking are adhered to repayment rates can be good even in poor and remote communities the important thing for financial institutions is to tailor services such that it becomes worthwhile for the poor to establish a profitable long term association in addition more freedom to members in the process of group formation is recommended

governance and contract choice theory and evidence from groundwater irrigation markets abstract this paper examines the role governance institutions play in the adoption of contracts we develop a simple model of the contracting relationship in a setting where unverifiable outcomes exist and use it to interpret data on groundwater irrigation contracts in bangladesh a distinguishing feature of this market is the variety of village level institutions which impose different degrees of punishment for contract violation consistent with the model we find households adopt contracts that rely on unverifiable outcomes which are not formally contractible when punishment for contract violation is weak conversely households adopt contracts that rely on formally contractible and verifiable outcomes when punishment is severe this evidence is consistent with contract terms being chosen optimally given what is or is not formally contractible

social learning neighborhood effects and investment in human capital evidence from green revolution india abstract this paper empirically identifies social learning and neighborhood effects in schooling investments in a new technology regime social learning implies that learning is most efficient when observed heterogeneity in schooling is greatest the estimates of learning investment rule from farm household panel data at the onset of the green revolution in india show that i agents learn about schooling returns from income realizations of their neighbors and ii the speed of learning is high when the variation of schooling is large thus schooling distribution of the parents generation in a community has externalities to schooling investments in children simulations show that the variations in schooling within and across communities generate variations in child enrollment rate and average household income

what type of microfinance institutions supply savings products abstract recent evidence shows that the poor desperately need access to savings products but despite this general consensus microfinance institutions mfis offering savings products are still under studied using random effect probit estimation on a dataset of 722 mfis active over the 2005 2010 period we try to identify the characteristics of those that collect voluntary savings our results suggest that these mfis have received fewer subsidies than their credit only counterparts in other words subsidies would crowd out micro savings products suggesting that donors generate negative externalities on product diversification

the impact of group based credit programs on poor households in bangladesh does the gender of participants matter this paper estimates the impact of participation by gender in the grameen bank and two other group based micro credit programs in bangladesh on labor supply schooling household expenditure and assets the empirical method uses a quasi experimental survey design to correct for the bias from unobserved individual and village level heterogeneity we find that program credit has a larger effect on the behavior of poor households in bangladesh when women are the program participants for example annual household consumption expenditure increases 18 taka for every 100 additional taka borrowed by women from these credit programs compared with 11 taka for men

formal informal sector interaction in rural credit markets abstract the majority of small cultivators in the less developed countries are not regarded as credit worthy by the formal sector financial institutions and are forced to borrow from the moneylenders in the informal credit market this paper shows that when such borrowers differ in their likelihood of default and the moneylenders are asymmetrically informed about the client specific degree of risk the policy of providing cheap credit through the formal sector can generate adverse composition effects which worsen the terms of credit and the availability of loans in the informal sector

microfinance with chinese characteristics abstract analyzing household survey data from three microfinance program sites we provide an early systematic assessment of chinese microfinance programs which have grown rapidly since 1994 are based on the grameen model and include an unprecedented large scale government initiative we examine the empirical propositions that underpin successful microfinance programs reaching the poor targeting financial and operational performance sustainability and program benefits impact we find that nongovernmental programs perform well in all three areas but that governmental programs perform poorly given the remote location and focus on agricultural projects in china s poor areas we advocate greater flexibility in loan contract terms especially repayment schedules

a credit score system for socially responsible lending ethical banking microfinance institutions or certain credit cooperatives among others grant socially responsible loans this paper presents a credit score system for them the model evaluates social and financial aspects of the borrower the financial aspects are evaluated under the conventional banking framework by analysing accounting statements and financial projections the social aspects try to quantify the loan impact on the achievement of millennium development goals such as employment education environment health or community impact the social credit score model should incorporate the lender s know how and should also be coherent with its mission this is done using multi criteria decision making mcdm the paper illustrates a real case a loan application by a social entrepreneur presented to a socially responsible lender the decision support system not only produces a score but also reveals strengths and weaknesses of the application

group lending local information and peer selection this paper analyzes how group lending programs use joint liability to utilize local information that borrowers have about each other s projects through self selection of group members in the group formation stage these schemes are shown to lead to positive assortative matching in group formation faced with the same contract this makes the effective cost of borrowing lower to safer borrowers because they have safer partners conditional on success their expected dues to the lender are lower than that of riskier borrowers the resulting improvement in the pool of borrowers is shown to increase repayment rates and welfare q 1999 elsevier science b v all rights reserved

the life cycle of a microfinance institution the irish loan funds abstract ireland s loan funds were a long lived self sustaining large scale microfinance organization that made millions of loans without collateral to the poor during the first 100 years of their life cycle a period of growth ending in the 1840s they adapted constantly and obtained improvements to their legal structure because they were complementary to the banking system and seen as effective in relieving poverty in their 2nd century they became ossified in part because of competition with commercial banks the loan funds provide an example of sustainable microfinance under harsh economic conditions and illustrate how organizations change incrementally and when successful alter their institutional framework

personal networks and nonagricultural employment the case of a farming village in the philippines abstract this article based on an intensive village survey in the philippines analyzes the effects of personal networks on rural villagers access to nonagricultural occupations and the terms of employment given to them a key finding is that personal networks are selectively used to reduce transaction costs and their impacts on employment conditions vary by size and by location of enterprises we find that when villagers are employed in unskilled work at small enterprises those who use family relative networks receive wage premiums however if we limit our sample to small enterprises located near our study village the family relative network premiums become insignificant presumably because of the overriding influence of the community wide network within a narrow local community contrary to the case of small enterprises unskilled workers wages at large enterprises are not much affected by personal networks but are largely determined by years of schooling and work experience the recent developmen

designing credit agent incentives to prevent mission drift in pro poor microfinance institutions abstract credit agents in microfinance institutions mfis must be given incentives to acquire information on potential borrowers and select them in accordance with the mfi s objectives we show that while giving incentives has no cost in for profit mfis it is costly in pro poor mfis when repayment and wealth are positively correlated a pro poor mfi cannot obtain the selection of poor clients in the proportion it wishes with incentives based solely on repayment it then becomes necessary to audit the share of very poor borrowers selected by an agent in order to provide the latter with adequate incentives when audit costs are large pro poor mfis may have to forego selection on wealth and use other targeting devices such as working in impoverished geographical locations driven by donor concerns with mission drift away from the poor audits on the wealth status of clients have been introduced at the level of mfis we show that introducing pro poor incentives requires extending such audits to the level of credit agents

which microfinance institutions are becoming more cost effective with time evidence from a mixture model italian speakers tend to stress the second component of german morphologically complex words such as compounds and prefix verbs even if the first component is lexically stressed to improve their prosodic phrasing an automatic pronunciation teaching method was developed based on auditory feedback of prosodically corrected utterances in the learners own voices basically the method copies contours of f0 local speech rate and intensity from reference utterances of a german native speaker to the learners speech signals it also adds emphasis to the stress position in order to help the learners better recognise the correct pronunciation and identify their errors a perception test with german native speakers revealed that manipulated utterances significantly better reflect lexical stress than the corresponding original utterances thus two groups of italian learners of german were provided with different feedback during a training session one group with manipulated utterances in their individual voices and the other with correctly pronounced original utterances in the teacher s voice afterwards both groups produced the same sentences again and german native speakers judged the resulting utterances resynthesised stimuli especially with emphasised stress were found to be a more effective feedback than natural stimuli to learn the correct stress position since resynthesis was obtained without previous segmentation of the learners speech signals this technology could be effectively included in computer assisted language learning software

financing microfinance institutions subsidies or deposit mobilisation abstractaccording to conventional wisdom dependence on subsidies cannot achieve the double bottom lines of microfinance institutions mfis outreach and financial sustainability the application of market based principles to microfinancing such as deposit mobilisation has been long suggested as an answer to this problem this paper documents the following findings regarding this issue first deposit mobilisation crowds out subsidies second subsidies and deposit mobilisation reduce microcredit interest rates and allow mfis to reach poorer borrowers third subsidies and deposit mobilisation worsen financial sustainability fourth subsidies reduce repayment rates while deposit mobilisation has no impact on repayment overall the results suggest that neither subsidies nor deposit mobilisation solve the traditional problem of trade off between outreach and financial sustainability

information and enforcement in informal credit markets we study loan enforcement in informal credit markets with multiple lenders but no sharing of credit histories and derive the dynamics of loan size and interest rates for relational lending in the presence of a sufficient fraction of natural defaulters the rest of the market can be incentivized against default by micro rationing sharper credit limits and possibly higher interest rates that serve as gateways into new borrowing relationships when there are too few natural defaulters in the market this can be supplemented by macro rationing random exclusion of some borrowers when information collection is endogenized multiple equilibria may arise

from ngos to banks does institutional transformation alter the business model of microfinance institutions microfinance which pledges to provide financial services to people without access to banking is chiefly run by non governmental organizations ngos little is known about the extent to which the transformation of these ngos into shareholder owned and most often regulated firms affects the way microfinance institutions mfis conduct their business by applying the event study methodology to 66 mfis that have transformed we quantify the effect that transformation has on the mfis business models our results suggest that portfolio yield is driven down by 3 9 percentage points due to transformation indicating that clients get more favorable interest rates at the same time mfis are able to significantly cut down their operational expenses of which 1 1 percentage points can be attributed to transformation other findings include a steep increase in commercial debt leverage and deposits a significant decrease in the fluctuation of funding costs and a sharp rise in average loan size profitability goes down in the short and medium term while return on equity is driven up in the medium to long run by exploiting within mfi data our approach goes beyond previous studies that mainly relied on between mfi data overall the results suggest that transformed mfis become an attractive environment for investors potentially encouraging a more profit seeking behavior among transformed mfis

a study of codes of ethics for mexican microfinance institutions most scholarly interest in codes of ethics or conduct has focused on traditional companies little is known about the codes of social enterprises or hybrid organizations such as microfinance institutions mfis our paper provides a comparative case study of the codes of a mexican microfinance network and seven mfis using the corporate integrity model we analyze the content of mfis codes compared to those of traditional organizations we then examine to what extent some specific features of mfis such as their mission target group and applied credit methodologies are factors that determine the content of their code we find that mfis codes like those of traditional companies include traditional stakeholder principles nevertheless they put greater emphasis on socially oriented principles or on terms such as people and common good mfis codes differ with respect to the items they include and exclude and the size of the covered sections we also find that these codes attempt to address prevailing concerns in microfinance but rarely tackle two critical debates namely levels of interest rates and of profitability we finally argue that it is difficult to move toward a global code owing to regional disparities and the variety of organizational models and missions