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