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

cooperation against theft a test of incentives for water management in tunisia water theft carried out by manipulating water meters constrains volumetric pricing in semi arid regions cooperative management can reduce theft and improve incentives for efficient water use by inducing peer monitoring using a theoretical model we show that theft is more likely when prices are high punishments are weak and cooperatives are large we also show how cooperative membership and punishment levels are determined endogenously by constraints on monitoring we test the model on data from tunisia for the years 2001 2003 relying on instruments that proxy for unobservable monitoring costs the results confirm that well designed incentives can reduce theft and that constraints on monitoring costs affect institutional design

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

democracy comes to europe franchise extension and fiscal outcomes 1830 1938 abstract this paper examines the relation between public spending and the spread of democracy in western europe during the period 1830 1938 our data set includes measures of the size of the electorate the election rule and electoral participation as well as measures of the size and composition of central government expenditures for 12 countries we estimate panel regressions and find that 1 the gradual lifting of socio economic restrictions on the voting franchise contributed to growth in government spending mainly by increasing spending on infrastructure and internal security 2 the female suffrage had a weak positive effect through spending on health education and welfare 3 the change from majority to proportional rule which took place in 10 of the countries did not contribute to growth in government spending and held back spending on health education and welfare 4 there exists weak complementarity between economic development and the spread of democracy

weaving straw into gold managing organizational tensions between standardization and flexibility in microfinance this article explores how organizations balance the pressures to pursue efficiency through standardization with the need to remain responsive to local needs the study combines rich ethnography with detailed loan data to show that both standardization and flexibility through relational ties provide substantial organizational benefits but also carry significant costs thus no strategy is inherently superior and their coexistence generates the best results such coexistence however creates contradictions that must be managed here i use microfinance as a strategic setting and gain analytic leverage from the random assignment across branches of loan officers who exhibit significant heterogeneity in rule enforcement styles some enforce rules strictly whereas others frequently bend them to respond to client needs i find that loan officers with relational styles exercise discretion productively to enhance organizational performance yet their effectiveness is contingent on the presence of rule enforcing peers as evidenced by the significant underperformance of branches with a high concentration of officers of either type in contrast branches that contain discretionary diversity or a balance between enforcement styles perform best this is not due to diversity per se but because loan officers process decisions in local credit committees committees that contain discretionary diversity generate a productive tension that induces participants to justify decisions along broader organizational goals thus maintaining a productive balance between standardization and flexibility implications for organizational theory and practice are discussed

introduction imperfect information and rural credit markets puzzles and policy perspectives rural credit markets have been at the center of policy intervention in developing countries over the past forty years many governments supported by multilateral and bilateral aid agencies have devoted considerable resources to supplying cheap credit to farmers in a myriad of institutional settings the results of many of these interventions have been disappointing and one explanation for this must be that they were based on an inadequate understanding of the workings of rural credit markets the articles in this symposium issue are devoted to empirical and theoretical investigations of rural credit markets in the framework of the imperfect information paradigm the authors show how this framework is useful not only in explaining puzzling features of these markets but also in providing a policy perspective to assess the successes and failures of specific interventions

why do different countries choose a different public private mix of educational services we observe a wide range across countries in the percentage of total enrollments that attend private rather than public schools this paper seeks to explain 1 the systematically higher proportion of private enrollments pvt in developing as compared with developed countries at the secondary level and 2 the seemingly random variation across countries within a given level of education and stage of development i argue that the latter is due to differentiated demand and nonprofit supply both of which stem from cultural heterogeneity especially religious heterogeneity in contrast the large pvt at the secondary level in developing countries is hypothesized to stem from limited public spending which creates an excess demand from people who would prefer to use the public schools but are involuntarily excluded and pushed into the private sector the limited public spending on secondary education in turn is modelled as a collective decision which is strongly influenced by the

group loyalty and the taste for redistribution interpersonal preferences preferences that depend on the characteristics of others are typically hard to infer from observable individual behavior as an alternative approach this paper uses survey data to investigate interpersonal preferences i show that self reported attitudes toward welfare spending are determined not only by financial self interest but also by interpersonal preferences these interpersonal preferences are characterized by a negative exposure effect individuals decrease their support for welfare as the welfare recipiency rate in their community rises and racial group loyalty individuals increase their support for welfare spending as the share of local recipients from their own racial group rises these findings help to explain why levels of welfare benefits are relatively low in racially heterogeneous states

distribution and redistribution in postindustrial democracies this paper analyzes the processes of distribution and redistribution in post industrial democracies we combine a pooled time series data base on welfare state effort and its determinants assembled by huber ragin and stephens 1997 with data on income distribution assembled in the luxembourg income survey lis archive in the case of the lis data we re calculate the micro data in order to remove the distorting influence of pensioners on pre tax pre transfer income distribution we examine the determinants of three dependent variables pre tax pre transfer income inequality post tax post transfer income inequality and the proportional reduction in inequality from pre to post tax and transfer inequality we hypothesized that pre tax pre transfer income inequality would be determined by labor market institutions union density bargaining centralization labor market conditions unemployment and economic structures post industrialism third world imports we hypothesized that the reduction in inequality would be determined by political configurations directly by left government and indirectly via their effect on welfare state generosity by left government and christian democratic government post tax and transfer income inequality was hypothesized to be a product of the combination of labor market variables and political variables the results broadly confirms our hypotheses and the overall fit is very good

immigration redistribution and universal suffrage the effect of immigration on redistribution has been widely debated this paper contributes to this debate by testing two explanations which are that i immigration tends to reduce redistribution due to people s higher levels of xenophobia and that ii immigration affects redistribution because immigrants do not have the right to vote since the demand for redistribution depends on the expected gap between median voter income and mean income immigrants affect the demand for redistribution because as non citizens they do not change the median voter s income but as economic stakeholders they do affect the mean income four empirical consequences of i and ii are tested at the individual level evidence from the european values survey in 45 countries confirms ii showing that immigrants expected competitiveness on the labor market affects preferences for redistribution and that it is amplified when the perceived number of immigrants is high in contrast i is globally rejected since the impact of the citizens declared level of solidarity with immigrants tends to be weak and depends on the type of measurement or specification used

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

estimating labor supply of farm households under nonseparability empirical evidence from nepal abstract this paper examines the labor supply of farm households in nepal using a recently developed methodology that accounts for the simultaneity between production and consumption decisions of the households estimates of marginal products of male and female labor or shadow wages are obtained from an agricultural production function an instrumental variable approach is then used to recover the household s structural labor supply from variations in the shadow wages and income as well as other household characteristics the findings reveal that both male and female total labor supply are sensitive to changes in shadow wages and income human capital embodied in education is found to exert a significant positive effect on output but has no statistically significant impact on total labor supply of individuals the results also rejects the existence of efficient labor markets in rural nepal

fractionalization and the size of government i study the effect of voters with a group based social conscience voters care more about the well being of those belonging to their own group than the rest of the population within a model of political tax determination both fractionalization and group antagonism reduce the support for redistribution whereas within group inequality increases support for redistribution inequality between groups has the opposite effect these results hold even if a poor group forms a majority using a panel constructed from us micro data i find support for the hypothesis that within race inequality increases redistribution while between race inequality decreases redistribution

who is against immigration a cross country investigation of individual attitudes toward immigrants abstract this paper empirically analyzes economic and noneconomic determinants of individual attitudes toward immigrants within and across countries the two survey data sets used covering a wide range of developed and developing countries make it possible to test for interactive effects between individual characteristics and country level attributes in particular theory predicts that the correlation between pro immigration attitudes and individual skill should be related to the skill composition of natives relative to immigrants in the destination country skilled individuals should favor immigration in countries where natives are more skilled than immigrants and oppose it otherwise results based on direct and indirect measures of the relative skill composition are consistent with these predictions noneconomic variables also are correlated with immigration attitudes but they don t alter significantly the labor market results

spend it like beckham inequality and redistribution in the uk 1983 2004 a main activity of the state is to redistribute resources standard political economy models predict that a rise in inequality will lead to more redistribution this paper shows that for the uk in the period 1983 2004 a plausibly exogenous rise in income inequality has not been associated with increased redistribution we explore this example of the paradox of redistribution using attitudinal data we show that standard political economy models of the individual demand for redistribution do have explanatory power but that other attitudes and beliefs are also very important moreover these attitudes and beliefs change quite quickly so are very important in explaining variation in the demand for redistribution

did women s suffrage change the size and scope of government this paper examines the growth of government during this century as a result of giving women the right to vote using cross sectional time series data for 1870 1940 we examine state government expenditures and revenue as well as voting by u s house and senate state delegations and the passage of a wide range of different state laws suffrage coincided with immediate increases in state government expenditures and revenue and more liberal voting patterns for federal representatives and these effects continued growing over time as more women took advantage of the franchise contrary to many recent suggestions the gender gap is not something that has arisen since the 1970s and it helps explain why american government started growing when it did

credit markets in northern nigeria credit as insurance in a rural economy this article addresses the issues of imcomplete markets and imperfect information in the context of credit markets in rural northern nigeria in much recent theoretical literature the problems of moral hazard and adverse selection are assumed to be decisive for the organization of agrarian institutions in contrast it is found that in the four villages surveyed credit transactions take advantage of the free flow of information within rural communities information asymmetries between borrower and lender are unimportant and their institutional consequences the use of collateral and interlinked contracts are absent credit transactions play a direct role in pooling risk between households through the use of contracts in which the repayment owed by the borrower depends on the realization of random production shocks by both the borrower and the lender

the effect of social capital on group loan repayment evidence from field experiments an important question to microfinance is the relevance of existing social capital in target communities to the performance of group lending this research presents evidence from field experiments in south africa and armenia in which subjects participate in trust and microfinance games we present evidence that personal trust between group members and social homogeneity are more important to group loan repayment than general societal trust or acquaintanceship between members we also find some evidence of reciprocity those who have been helped by other group members in the past are more likely to contribute in the future during the past decade exploring the role that social capital plays in economic behaviour has emerged as one of the most fascinating and fertile areas of economic research although precise definitions of social capital are notoriously difficult to pin down one of the early pioneers of the concept coleman 1988 defines social capital as social structure that facilitates certain actions of actors within the structure in his definition coleman specifically highlights the roles of mutual obligation expectations and trustworthiness social norms social sanctions and the transmission of information important studies in both developed and developing countries have analysed the impact of social capital in economic relationships putnam s celebrated work making democracy work civic traditions in modern italy 1993 and bowling alone america s declining social capital 1995 brought attention to the role that social capital plays in the development of the modern state udry s ground breaking 1994 work in nigeria illustrated how the social capital existing in traditional societies may allow for more efficient credit contracts than in developed economies with weaker social

vertical integration and firm boundaries the evidence since ronald h coase s 1937 seminal paper a rich set of theories has been developed that deal with firm boundaries in vertical or input output structures in the last twenty five years empirical evidence that can shed light on those theories also has been accumulating we review the findings of empirical studies that have addressed two main interrelated questions first what types of transactions are best brought within the firm and second what are the consequences of vertical integration decisions for economic outcomes such as prices quantities investment and profits throughout we highlight areas of potential cross fertilization and promising areas for future work

joint liability versus individual liability in credit contracts abstract i offer an explanation for the coexistence of joint liability and individual liability microcredit contracts i show that both contracts maximize welfare when credit is rationed due to limited liability but for different borrowers borrowers monitor each other when liability is joint while the lender monitors individual loans joint liability offers poorer borrowers larger loans with less monitoring effort than would have to be exerted by the lender individual liability offers the wealthier among credit constrained borrowers larger loans even without monitoring the theory explains why individual loans serve the wealthier among poor borrowers and are larger and why businesses funded with individual loans grow more

bogus joint liability groups in microfinance abstract in a random sample of clients of cfpam the largest microlender in china 73 of all joint liability groups practice lei da hu that is one person uses all group members loans in a single project we call such borrower groups bogus groups the lei da hu practice violates a key premise of group lending that each borrower must use their loan in a separate project what we call standard group we extend the theory of group lending by analyzing the endogenous formation and coexistence of standard and bogus groups and characterize the efficient lending terms the chosen group form depends on the borrower productivities and probability of success bogus groups are formed by heterogeneous borrowers when the gains from larger expected output exceed the foregone default risk diversification accounting for bogus groups in their lending strategy can help mfis raise productive efficiency and borrower welfare

a reappraisal of state owned banks we revisit the public banks debate survey the theoretical arguments and test the robustness and expand the existing empirical evidence while we find some support for the view that public banks do not allocate credit optimally we also report indicative evidence that they exert a positive influence on private bank efficiency and may contribute to reduce credit procyclicality ultimately we find that the recent criticism to public banks has generally been based on inconclusive cross country evidence more specific bank level research is still needed to substantiate a case for or against public banks in developing economies

repayment performance in group lending evidence from jordan abstract using data from a survey of 160 urban borrowing groups of the microfund for women in jordan we investigate the effect of screening peer monitoring group pressure and social ties on borrowing groups repayment behavior as an indirect test of different theoretical models the dependent variable used captures the intensity of default measured by the total number of days of late repayment after each due date allowing us to use count data models with cluster standard errors as theory predicts our empirical analysis suggests that peer monitoring group pressure and social ties reduce delinquency the paper uncovers interesting evidence about the role of social ties and religion most notably in an area where religion contributes to attitudes and beliefs of individuals we find that religiosity improves repayment performance

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

the taxman tools up an event history study of the introduction of the personal income tax abstract the introduction of income taxation was a landmark in the historical development of the fiscal state of the now developed world this paper presents an event history study of the adoption of the income tax in 17 countries from western europe north america oceania and japan between 1815 and 1939 we find evidence that spending pressures reductions in tax collection costs and to a lesser extent social learning played a significant role for the adoption decision we also find evidence that the extension of the franchise at first reduced the likelihood of adoption of the income tax but eventually as universal suffrage was approached increased the likelihood

reforms with a female face gender liberalization and economic policy in andhra pradesh india summary the state of andhra pradesh india provides a case study of a liberalization program with an emphasis on women s empowerment based on the state budget data and fieldwork data from two villages this paper investigates the content of this policy regime to argue that women s empowerment policies were ultimately constrained by the policy context of liberalization the state lowered shares of expenditure upon social reproduction and the substantive content of women s empowerment policy was reduced to a thrift and micro credit program fieldwork data indicate the latter lacks administrative support and relies upon the expenditure of time and resources by participants themselves re emphasizing class and caste inequalities among women and undermining the broader project of empowerment

understanding preferences for income redistribution abstract recent research suggests that income redistribution preferences vary across identity groups we employ statistical learning methods that emphasize pattern recognition classification and regression trees cart and random forests randomforests to uncover what these groups are using data from the general social survey we find that out of a large set of identity markers only race gender age and socioeconomic class are important classifiers for income redistribution preferences further the uncovered identity groupings are characterized by complex patterns of interaction amongst these salient classifiers we explore the extent to which existing theories of income redistribution can explain our results but conclude that current approaches do not fully explain the findings

risks at work the demand and supply sides of government redistribution to comprehend how the welfare state adjusts to economic shocks it is important to get a handle on both the genesis of popular preferences and the institutional incentives for governments to respond to these preferences this paper attempts to do both using a general theoretical framework and detailed data at both the individual and national levels in a first step we focus on how risk exposure and income are related to preferences for redistribution to test our hypotheses we extract detailed risk exposure measures from labour force surveys and marry them to cross national opinion survey data results from analysis of these data attest to the great importance of risks within the labour market in shaping popular preferences for redistributive efforts by governments in a second step we turn our attention to the supply side of government redistribution institutions we argue mediate governments reactions to redistributional demands following economic shocks using time series cross country data we demonstrate how national training systems and electoral institutions as well as partisanship shape government responses copyright 2006 oxford university press

using repayment data to test across models of joint liability lending theories rationalising joint liability lending are rich in implications for repayment rates we exploit this fact to test four diverse models we show that the models repayment implications do not always coincide for example higher correlation of output and borrowers ability to act cooperatively can raise or lower repayment depending on the model data from thai borrowing groups suggest that repayment is affected negatively by the joint liability rate ceteris paribus and social ties and positively by the strength of local sanctions and correlated returns further the relative fit of the adverse selection versus informal sanctions models varies by region

net neutrality and innovation at the core and at the edge abstract how would abandoning internet net neutrality affect content providers that have different sizes we model an internet broadband provider that can offer a different quality of service priority to heterogeneous content providers internet users can potentially access all content although they browse and click ads with different probabilities net neutrality regulation effectively protects innovation done at the edge by small content providers prioritization instead increases both infrastructure core investment and welfare only if it sufficiently stimulates innovation from the large content provider

financial performance and outreach a global analysis of leading microbanks microfinance contracts have proven able to secure high rates of loan repayment in the face of limited liability and information asymmetries but high repayment rates have not translated easily into profits for most microbanks profitability though is at the heart of the promise that microfinance can deliver poverty reduction while not relying on ongoing subsidy the authors examine why this promise remains unmet for most institutions using a data set with unusually high quality financial information on 124 institutions in 49 countries they explore the patterns of profitability loan repayment and cost reduction the authors find that institutional design and orientation matter substantially lenders that do not use group based methods to overcome incentive problems experience weaker portfolio quality and lower profit rates when interest rates are raised substantially for these individual based lenders one key to achieving profitability is investing more heavily in staff costs a finding consistent with the economics of information but contrary to the conventional wisdom that profitability is largely a function of minimizing cost

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

how important are endogenous peer effects in group lending estimating a static game of incomplete information summary we quantify the importance of endogenous peer effects in group lending programs by estimating a static game of incomplete information endogenous peer effects describe how one s behavior is affected by the behavior of her peers using a rich dataset from a group lending program in india our empirical analysis presents a robust finding of large peer effects the preferred model suggests that the probability of a member making a full repayment would be 12 percentage points higher if all the fellow members were to make full repayment compared with a scenario in which none of the other members repay in full we find that peer effects would be overestimated without controlling for unobserved group heterogeneity and that inconsistencies exist in the estimated effects of other variables without modeling peer effects and unobserved heterogeneity copyright 2012 john wiley sons ltd

the suspension of borrowing an implicit penalty for loan default under imperfect information abstracta credit seeker may be suspended from borrowing for a period of time due to a previous default such suspension is widely used in bank lending through credit check our work analyses the effects of suspension on the investment choice of borrowers under uncertainty and on the lending policy of banks facing asymmetric information we show that suspension should be tightened at low loan rates but loosened otherwise to improve the repayment performance of borrowers we also show that although credit rationing may not be completely removed due to imperfect information the excess demand for credit or transitive waiting in the market can actually be attenuated by such efficient use of suspension our theoretical predictions are consistent with observed cyclical patterns of changes in lendingrates and suspension severity

on the design of a credit agreement with peer monitoring this paper analyses the optimal design of collective credit agreements with joint responsibility first we demonstrate that these agreements can potentially induce peer monitoring reduce the incidence of strategic default and enhance the lender s ability to elicit debt repayments the resulting benefits in terms of extended credit should however be weighted against the higher monitoring effort that such agreements impose upon participant borrowers second we show that the relative benefits from peer monitoring are maximized when risks are positively correlated across borrowers and also when the size of the group is neither too small due to a joint responsibility cost sharing and commitment effects nor too large due to a free riding effect third we compare among different monitoring structures

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

joint liability lending and the rise and fall of china s township and village enterprises abstract we present a new explanation for the rise and fall of collectively owned enterprises based on the changing lending preferences of banks until the mid 1990s bank loans to collective firms exhibited the key features of joint liability lending supported by the sanctioning ability of local government leaders however subsequent changes in collateral firm performance interest rates and financial competition led banks to prefer individual lending to private firms this explanation is supported by empirical analysis of the determinants of bank lending preferences the involvement of township leaders in lending and the ability of firms to obtain loans

the radical right gender gap in this article the author argues that a gender gap exists in the vote for the radical right and that this gender gap can be explained using techniques drawn from the literature on mainstream gender gaps the analysis emphasizes the impact of the immigration issue on the vote for the radical right logit and regression analysis are used to determine what can be explained by structural situational and political factors versus gender alone in france germany and austria it is found that there is a gender gap but it varies across the three cases that attitudes toward political issues particularly immigration have a disproportionate impact on the probability of voting radical right but not on the gender gap specifically and that there is a difference between men and women on the immigration issue and blue collar workers are more likely to be anti immigrant than those in other sectors

social mobility and the demand for redistribution the poum hypothesis this paper examines the often stated idea that the poor do not support high levels of redistribution because of the hope that they or their offspring may make it up the income ladder this prospect of upward mobility poum hypothesis is shown to be fully compatible with rational expectations and fundamentally linked to concavity in the mobility process a steady state majority could even be simultaneously poorer than average in terms of current income and richer than average in terms of expected future incomes a e rst empirical assessment suggests on the other hand that in recent u s data the poum effect is probably dominated by the demand for social insurance in the future everyone will be world famous for e fteen minutes andy warhol 1968

a microcredit contract model with a black scholes model under default risk microfinance has emerged as a new promise for alleviating poverty and improving the limited access to financial services by offering small loans with no pledged collateral requirement to the poor due to the unique features of microfinance the credit relationship between the lender and the borrower is considered to be the foundation of the business based on the concept of supply chain microfinance this paper develops scenario based stochastic microcredit contract models for a group case in order to obtain a minimum interest rate a black scholes debt model estimates volatility directly from market observable returns on a borrower s equity next incorporating the minimum interest rate the stochastic microcredit models are developed to calculate a proper interest rate while maintaining the financial sustainability of a corporation the stochastic microcredit models also include financial statement analysis through financial ratios to reflect the microfinance business environment through the comparison of the effect of cash flow bullwhip this study illustrates that the proposed model has the potential to decrease the bullwhip effect by determining a proper interest rate in microcredit the proposed models could be used by microfinance institutions as an effective credit risk tool

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

microfinance and investment a comparison with bank and informal lending summary comparing the impact of different types of credit on households investment in bangladesh we find that loans from microfinance institutions are likely to be channeled toward non agricultural activities while both informal and bank lending are associated to a higher expenditure in agricultural inputs estimated effects are net of the differences in the amount borrowed interest rates and collateral results suggest that features which are specific to microfinance such as tight repayment schedules and land based eligibility rules may reduce the suitability of this source of funds for the farming sector

the exclusion of competing one way essential complements implications for net neutrality abstract we analyze the incentives of internet service providers isps to break net neutrality by excluding competing one way essential complements i e internet applications competing with their own products a typical example is the exclusion of voip applications by telecom companies offering internet and voice services a monopoly isp may want to exclude a competing internet app if it is of inferior quality and the isp cannot ask for a surcharge for its use competition between isps never leads to full app exclusion but it may lead to a fragmented internet where only one isp offers the application we show that both in monopoly and duopoly prohibiting the exclusion of the app and surcharges for its use does not always improve welfare

imperfect information screening and the costs of informal lending a study of a rural credit market in pakistan many governments have perceived the rural moneylender as usurious this article takes a first step toward directly testing the validity of this view in a study of services costs and charges of fourteen informal market moneylenders and their clients in chambar pakistan the article examines whether the high implicit interest rates charged reflect the actual costs of operating in that market estimates of the resource costs incurred by informal lenders for screening pursuing delinquent loans overhead and cost of capital including unrecoverable loans suggest that lenders charges are equal to their average cost of lending but exceed their marginal cost this finding is consistent with the view that the informal credit market is characterized by excess capacity and monopolistic competition in the presence of imperfect information

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

group insurance and lending with endogenous social collateral abstract we construct a dynamic model of self enforcing insurance provision and lending to a community of borrowers who are connected by risk sharing arrangements that are themselves subject to enforcement problems as in kocherlakota 1996 we show that an outside lender offering constant consumption contracts can earn a higher profit if he conditions his repeated interactions with each borrower on the history of his interactions with all the group members a joint liability contract rather than on his history with that borrower only individual liability contracts this result holds even in the absence of informational asymmetries the observation driving it is that with individual liability contracts a joint welfare maximizing group may prefer to have one or more group members default on their contracts so that the group can consume a mix of outside funds and the defaulters stochastic income one contribution of our work is to give precise economic content to the concept of social collateral as the per agent surplus from group risk sharing over autarky the group can deter its members from defaulting on their contracts with the principal by threatening to reduce that surplus

when is the optimal lending contract in microfinance state non contingent whether a micro nance institution should use a state contingent repayment or not is very important since a state contingent loan can provide insurance for borrowers however the classic grameen bank used state non contingent repayment which is puzzling since it forces poor borrowers to make their payments even under hard circumstances this paper provides an explanation to this puzzle we consider two modes of lending group and individual lending and for each mode

the labor market impact of immigration in western germany in the 1990 s in this article we estimate the wage and employment effects of recent immigration in western germany using administrative data for the period 1987 2001 and a labor market equilibrium model we find that the substantial immigration of the 1990s had very little adverse effects on native wages and on their employment levels instead it had a sizeable adverse employment effect on previous immigrants as well as a small adverse effect on their wages these asymmetric results are partly driven by a higher degree of substitution between old and new immigrants in the labor market and in part by the rigidity of wages in less than flexible labor markets in a simple counter factual experiment we show that in a world of perfect wage flexibility and no unemployment insurance the wage bill loss of old immigrants would be much smaller

optimal collective contract without peer information or peer monitoring if entrepreneurs have private information about factors influencing the outcome of an investment individual lending is inefficient the literature typically offers solutions based on the assumption of full peer information to solve adverse selection problems and peer monitoring to solve moral hazard problems in contrast i show that it is possible to construct a simple budget balanced mechanism that implements the efficient outcome even if each borrower knows only own type and effort and has neither privileged knowledge about others nor monitoring ability the mechanism satisfies participation incentives for all types and is immune to the rothschild stiglitz cream skimming problem despite using transfers from better types to worse types the presence of some local information implies that the mechanism cannot be successfully used by formal lenders thus a local credit institution can emerge as an optimal response to the informational environment even without peer information or monitoring finally i investigate the role of monitoring in this setting and show how costly monitoring can increase the scope of the mechanism

micro credit in chiapas mexico poverty reduction through group lending micro credit mc programs lend money to poor borrowers using innovative mechanisms such as group lending under joint liability while successfully accounting for the presence of asymmetric information in underdeveloped financial markets mc programs have achieved what the conventional financial institutions and the government have not been able to lend to the poor impressive loan recuperation and a positive impact in poverty reduction this article analyzes the performance of alsol an mc program in chiapas mexico for 2151 participants in urban and rural areas for the time period between july 2000 and july 2001 while loan recuperation is high 95 administrative costs also remain high socially responsible lenders and donors play a key role in providing continuous funding to mc programs and assisting in reducing the level of poverty

net neutrality a fast lane to understanding the trade offs the net neutrality principle has triggered a heated debate and advocates have proposed policy interventions in this paper we provide perspective by framing issues in terms of the positive economic factors at work we stress the incentives of market participants and highlight the economic conflicts behind the arguments put forward by the different parties we also identify several key open questions

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

multiproduct price discrimination with quantity limits an application to zero rating abstract zero rating is a recent practice that allows internet providers to discriminate among contents focusing on the consumer side we show that a monopolist provider may implement zero rating in order to extract more surplus from consumers who have heterogeneous tastes for content this is akin to the practice of quantity discounts with one difference the monopolist screens consumer types by distorting not only the total consumption but also the composition of consumption zero rating may lead to an increase in network capacity and improve welfare

tax burden and migration a political economy theory and evidence abstract the extent of taxation and redistribution policy is generally determined as a political economy equilibrium by a balance between those who gain from higher taxes transfers and those who lose the standard theory of the size of government in a representative democracy links the tax burden to measures of the pre tax income inequality we develop in this paper a theory which encompasses the existing literature and provides a complementary channel linking the tax burden in the presence of migration to the fiscal leakage from native born to the migrants in a stylized model of migration and human capital formation we show somewhat against the conventional wisdom that low skill immigration can lead to a lower tax burden and less redistribution than would be the case with no immigration even though migrants naturally join the pro tax transfer coalition data on 11 european countries over the period 1974 1992 are consistent with the implications of the theory a higher share of low education immigrants in the population leads to a lower tax rate on labor income and less generous social transfers

the thai rural credit system public subsidies private information and segmented markets thailand has sought to increase farmers access to credit by government intervention in 1966 it created a government agricultural bank to lend solely to farm households and beginning in the late 1970s it required commercial banks to lend heavily in the rural sector either directly or by making deposits in the agricultural bank the result was an enormous expansion of credit in the rural sector but because formal lenders were either unable or unwilling to solve the information problems involved in the broad range of rural credit transactions the informal credit sector wbich charged interest rates many times higher than the formal sector continued to thrive using household surveys and surveys of moneylenders this article provides a detailed analysis of the ways in which lenders in the informal sector have solved the information problems of providing credit the authors argue that the informal sector is competitive and that high interest rates reflect high information costs not the scarcity of funds this article reports on a set of investigations of the impact of thai government policies to expand bank lending in the rural sector their purpose was to increase farmers access to capital and reduce their dependence on informal lenders fifteen years after the principal government measures were introduced we hope to be able to answer several questions how has the expansion of formal sector lending affected the informal sector did the increase in the supply of formal credit reduce the business of informal lenders and lower interest rates in the informal market what has been the performance of the formal credit system in terms of coverage efficiency and incidence lacking time series data on the informal sector we cannot give a direct answer to these questions but we can with confidence say that the informal lenders are still very much alive by examining the behavior of the rural credit market at the present time we can throw an indirect light on what transpired over the last fifteen years our main findings are the following on the basis of our 1984 85 survey of households and moneylenders

preferences for redistribution in the land of opportunities this paper explores how individual preferences for redistribution depend on future income prospects in addition to estimating the impact of individuals socioeconomic background and of their subjective perceptions of future mobility we employ panel data to construct dobjectivet measures of expected gains and losses from redistribution for different categories of individuals we find that such measures have considerable explanatory power and perform better than dgeneral mobilityt indexes we also find that preferences for redistribution respond to individual beliefs on what determines one s position in the social ladder ceteris paribus people who believe that the american society offers equal opportunities are more averse to redistribution d 2004 published by elsevier b v

immigration and income redistribution a political economy analysis this paper examines the effect of immigration on the extent of income redistribution via majority voting on the income tax the tax outcome depends on the size of the native majority and the initial amount of redistribution in the economy which in turn determines the skill composition of immigrants as a main result we derive conditions for multiple tax equilibria if the native majority of either skilled or unskilled is not too strong and immigrants are allowed to vote both a high tax and a low tax outcome is possible in a referendum natives will then vote against immigrant voting at best natives are indifferent towards immigrant voting

competing lending platforms endogenous reputation and fragility in microcredit markets this paper shows that market fragility and mass default can arise in microcredit markets as a result of the strategic interaction between a microlender using a reputation based mechanism and a traditional lender using physical collateral in our model borrowers solve a dynamic programming problem which induces an endogenous equilibrium distribution of reputational capital because the quality of each lender s pool of borrowers is affected by both lenders interest rates lender reaction curves are non monotonic and discontinuous this can result in knife edge equilibria and mass default on the microlender precipitated by minor parametric perturbations fragility is exacerbated by borrower screening and sovereign risk but ameliorated when microlenders have social welfare goals our results highlight the importance of studying the entire credit market rather than microfinance in isolation

joint liability with endogenously asymmetric group loan contracts group lending is a common practice that microfinance institutions mfis utilize when lending to individuals without collateral we develop a multi agent principal agent model with costly peer monitoring and solve for the optimal group loan contract the optimal contract exhibits i a joint liability scheme and ii asymmetric loan terms which can be interpreted as appointing a group leader who has strong incentives to monitor her peer relaxing the joint liability scheme implies the breakdown of equilibrium monitoring when the contractual asymmetry is relaxed the peer monitoring game exhibits multiple nash equilibria a weak good equilibrium at which borrowers monitor each other and a strong bad equilibrium without monitoring this key result suggests that profit maximizing mfis should provide asymmetric group loan contracts even to a homogeneous group of borrowers to ensure stability in repayment rates

liability structure in small scale finance evidence from a natural experiment microfinance the provision of small individual and business loans has witnessed dramatic growth reaching over 150 million borrowers worldwide much of its success has been attributed to overcoming the challenges of information asymmetries in uncollateralized lending yet very little is known about the optimal contract structure of such loans there is substantial variation across lenders even within a particular setting this paper exploits a plausibly exogenous change in the liability structure offered by a microfinance program in india which shifted from individual to group liability lending the analysis finds compelling evidence that contract structure matters for the same borrower required monthly loan installments are 6 percent less likely to be missed under the group liability setting relative to individual liability in addition compulsory savings deposits are 19 percent less likely to be missed under group liability contracts

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

interest groups and the size of government the results of the previous section estimates of a three equation model from 23 observations must obviously be regarded as tentative the consistent positive relationship between number of interest groups and size of government observed with changing sets of included independent variables changing samples of nations and treating the number of interest groups as either exogenous or codetermined does imply rather unequivocally that interest groups are able to influence public policies in such a manner as to lead to increased government size beyond helping to reinforce this conclusion the results of the previous section should be regarded as first steps in the development of a model of the polity that can explain participation in the political process by interest groups and citizens as well as the size of government

microfinance subsidies and local externalities we analyse equilibrium borrowers effort and the cost of microcredit loans in the presence of moral hazard project correlation and subsidies under group lending conditions our results show that under the assumption of endogenous effort project correlation has significant effects on borrowers effort only when it is determined by asymmetric positive or negative shocks these findings indicate that the well known negative effect of within group symmetric project correlation on group lending with joint liability disappears once endogenous effort is taken into account we also analyse the effects of subsidised lending and asymmetric correlation on the relative convenience in terms of borrowers effort of the alternative 1 between group lending and individual lending with notional collateral and 2 among three different market structures of the microfinance industry

attitudes toward highly skilled and low skilled immigration evidence from a survey experiment past research has emphasized two critical economic concerns that appear to generate anti immigrant sentiment among native citizens concerns about labor market competition and concerns about the fiscal burden on public services we provide direct tests of both models of attitude formation using an original survey experiment embedded in a nationwide u s survey the labor market competition model predicts that natives will be most opposed to immigrants who have skill levels similar to their own we find instead that both low skilled and highly skilled natives strongly prefer highly skilled immigrants over low skilled immigrants and this preference is not decreasing in natives skill levels the fiscal burden model anticipates that rich natives oppose low skilled immigration more than poor natives and that this gap is larger in states with greater fiscal exposure in terms of immigrant access to public services we find instead that rich and poor natives are equally opposed to low skilled immigration in general in states with high fiscal exposure poor rich natives are more less opposed to low skilled immigration than they are elsewhere this indicates that concerns among poor natives about constraints on welfare benefits as a result of immigration are more relevant than concerns among the rich about increased taxes overall the results suggest that economic self interest at least as currently theorized does not explain voter attitudes toward immigration the results are consistent with alternative arguments emphasizing noneconomic concerns associated with ethnocentrism or sociotropic considerations about how the local economy as a whole may be affected by immigration

earnings inequality and welfare spending a disaggregated analysis the welfare state is generally viewed as either providing redistribution from rich to poor or as providing publicly financed insurance both views are incomplete welfare policies provide both insurance and redistribution in varying amounts depending on the design of the policy the authors explore the political consequences of the mix of redistribution and insurance in the context of studying the impact of income inequality on expenditures in different categories of welfare spending in advanced industrial societies from 1980 to 1995 they find that spending on pensions health care family benefits poverty alleviation and housing subsidies is largely uncorrelated with income inequality but that spending on income replacement programs such as unemployment insurance sickness pay occupational illness and disability are significantly higher in countries with more egalitarian income distributions they show that this pattern is exactly what a theory of political support for redistributive social insurance programs would predict

female voting power the contribution of women s suffrage to the growth of social spending in western europe 1869 1960 women s suffrage was a major event in the history of democratization in western europe and elsewhere public choice theory predicts that the demand for publicly funded social spending is systematically higher where women have and use the right to vote using historical data from six western european countries for the period 1869 1960 we provide evidence that social spending out of gdp increased by 0 6 1 2 in the short run as a consequence of women s suffrage while the long run effect is three to eight times larger we also explore a number of other public finance implications of the gender gap

repayment incentives and the distribution of gains from group lending group loans with joint liability are a distinguishing feature of many microfinance programs while such lending benefits millions of borrowers major lending institutions acknowledge its limited impact among the very poor and have shifted towards individual loans this paper attempts to explain this trend by exploring the relationship between borrower wealth and the benefits from group lending when access to credit is limited by strategic default in our model individuals of heterogeneous wealth face a given investment opportunity so poor investors demand larger loans we show that the largest loan offered as an individual contract cannot be supported as a group loan joint liability cannot therefore extend credit outreach in the absence of additional social sanctions within groups we also find that the benefits from group loans are increasing in borrower wealth and that optimal group size depends on project characteristics by allowing for multi person groups and wealth heterogeneity in the population the paper extends the standard framework to analyze joint liability and contributes to an understanding of the conditions under which microcredit can reduce poverty

a matter of relational style loan officer consistency and exchange continuity in microfinance social scientists have long considered what mechanisms underlie repeated exchange three mechanisms have garnered the majority of this attention formal contracts relational contracts and relationally embedded social ties although each mechanism has its virtues all three exhibit a common limitation an inability to fully explain the continuation and stability of intertemporal exchange between individuals and organizations in the face of change drawing on extensive quantitative data on approximately 450 000 microfinance loans made by a microfinance institution in mexico from 2004 to 2008 that include random assignment of loan officers this research proposes the concept of relational styles to help explain how repeated exchange is possible in the face of personnel change we define relational styles as systematically reoccurring patterns of interaction employed by social actors within and across exchange relationships in this paper between microfinance clients and loan officers we show that relati

group lending and the role of the group leader this paper investigates strategic monitoring behavior within group lending we show that monitoring efforts of group members differ in equilibrium due to the asymmetry between members in terms of future profits in particular we show that the entrepreneur with the highest future profits also puts in the highest monitoring effort moreover monitoring efforts differ between group members due to free riding one member reduces her level of monitoring if the other increases her monitoring effort this effect is also at play when we introduce a group leader into the model the individual who becomes the group leader supplies more monitoring effort than in the benchmark case we empirically test the model using data from a survey of microfinance in eritrea and show that the group leader attaches more weight to future periods than nonleaders in the group which may explain why a large part of total monitoring is done by the leader

electoral institutions and the politics of coalitions why some democracies redistribute more than others standard political economy models of redistribution notably that of meltzer and richard 1981 fail to account for the remarkable variance in government redistribution across democracies we develop a general model of redistribution that explains why some democratic governments are more prone to redistribute than others we show that the electoral system plays a key role because it shapes the nature of political parties and the composition of governing coalitions hence redistribution our argument implies 1 that center left governments dominate under pr systems whereas center right governments dominate under majoritarian systems and 2 that pr systems redistribute more than majoritarian systems we test our argument on panel data for redistribution government partisanship and electoral system in advanced democracies w hy do some countries redistribute more than others most work on the politics of redistribution starts from the premise that democratic institutions empower those who stand to benefit from redistribution the basic logic is succinctly captured in the meltzer richard 1981 model where the voter with the median income is also the decisive voter with a typical right skewed distribution of income the median voter will push for redistributive spending up to the point where the benefit of such spending to the median voter is outweighed by the efficiency costs of distortionary taxation this argument implies that redistibution is much greater in democracies than in nondemocracies at least of the right authoritarian variety and that among the latter inegalitarian societies redistribute more than egalitarian ones there is some evidence to supportthefirstimplication althoughitisdisputed see ross 2005 but most of the variance in redistribution is probably within the same regime type according to datafromtheluxembourgincomestudy forexample the reduction in the poverty rate in united states as a result of taxation and transfers was 13 in 1994 whereas the comparable figure for sweden was 82 thepovertyrateisthepercentageofhouseholdsbelow 50 of the median income to explain this variance we have to look at political and economic differences

sequential lending with dynamic joint liability in micro finance this paper develops a theory of sequential lending in groups in micro finance that centers on the notion of dynamic incentives in particular the simple idea that default incentives should be relatively uniformly distributed across time in a framework that allows project returns to accrue over time as well as strategic default we show that sequential lending can help resolve problems arising out of coordinated default thus improving project efficiency vis a vis individual lending inter alia we also provide a justification for the use of frequent repayment schemes as well as demonstrate that depending on how it is manifested social capital has implications for project efficiency and borrower default we next examine the optimal choices for the mfi and derive conditions for the optimality of the group lending arrangement our framework also provides for some plausible hypotheses as to why there has been a recent transition from group to individual lending