Abstract: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 lia… Show more
“…Given that grades in take-home tests in the experimental courses may be too noisy (students may cheat due to the pressure exerted by peer monitoring), we also built the index without the variable average grade in take-home tests and the results were similar 10 . This positive average effect of the joint-liability mechanism is also present in other research areas like Microfinance (Becchetti and Pisani, 2010;Banerjee and Duflo, 2010) where theory argues that this instrument gives poor borrowers strong incentives to monitor each other and, thus, reduces moral hazard. One of the most important keys to success is considered to be the joint liability mechanism, that is, the bank provides small individual loans to a group of borrowers and enforces a contract in which an individual's default on repayment implies penalties for the other group-mates.…”
We evaluate the impact of joint-liability incentives in the classroom using a randomized field experiment. The instructor designs groups of three students in the classroom and provides a premium to their homework's grade only if all three members of the group meet some requirements. To isolate the joint-liability effect from selfish motivations, we also design an individual incentives treatment. We find that joint-liability incentives impact positively on the grades attained in homework and midterm exams both in experimental courses and in other courses taken by the students in the semester. Though the average positive effect seems to disappear in final exams, the overall impact of joint-liability incentives on the academic achievements in the semester is still positive. A drawback of this program is a decrease in classmate satisfaction. The significant effectiveness of the peer monitoring developed by jointliability incentives in a group provides novel implications for the design of grading policies in the classroom and for other social settings where incentives may be based in peer monitoring or joint liability. JEL: I20, I23
“…Given that grades in take-home tests in the experimental courses may be too noisy (students may cheat due to the pressure exerted by peer monitoring), we also built the index without the variable average grade in take-home tests and the results were similar 10 . This positive average effect of the joint-liability mechanism is also present in other research areas like Microfinance (Becchetti and Pisani, 2010;Banerjee and Duflo, 2010) where theory argues that this instrument gives poor borrowers strong incentives to monitor each other and, thus, reduces moral hazard. One of the most important keys to success is considered to be the joint liability mechanism, that is, the bank provides small individual loans to a group of borrowers and enforces a contract in which an individual's default on repayment implies penalties for the other group-mates.…”
We evaluate the impact of joint-liability incentives in the classroom using a randomized field experiment. The instructor designs groups of three students in the classroom and provides a premium to their homework's grade only if all three members of the group meet some requirements. To isolate the joint-liability effect from selfish motivations, we also design an individual incentives treatment. We find that joint-liability incentives impact positively on the grades attained in homework and midterm exams both in experimental courses and in other courses taken by the students in the semester. Though the average positive effect seems to disappear in final exams, the overall impact of joint-liability incentives on the academic achievements in the semester is still positive. A drawback of this program is a decrease in classmate satisfaction. The significant effectiveness of the peer monitoring developed by jointliability incentives in a group provides novel implications for the design of grading policies in the classroom and for other social settings where incentives may be based in peer monitoring or joint liability. JEL: I20, I23
“…MFIs provide loans at higher rates than banks, thus indicating that clients subsidize the MFI (Becchetti and Pisani, ; Cull et al, ). However, these interest rates are still lower than they would be in the absence of government and private donors or impact investors.…”
Section: Lessons From Microfinance For Social Entrepreneursmentioning
confidence: 99%
“…MFIs provide loans at higher rates than banks, thus indicating that clients subsidize the MFI (Becchetti and Pisani, 2010;Cull et al, 2018).…”
Section: An Element Of Subsidy In Resource Procurementmentioning
Social entrepreneurs sell dreams of solving a social problem of a segment of society to entice a broader segment of society to subsidize their ventures. They are motivated by a combination of passion and compassion, need for creativity, problem solving, and esteem. They sell their dreams by storytelling and narratives in order to obtain subsidized resources. In order to achieve their goals, they need to demonstrate the impact for the continuance of subsidies. Too much financial profit leads to withdrawal of subsidies.
“…Economic theory suggests that collateralized loans ensure more successful loan repayment rates because the cost of defaulting on collateralized loans is much higher (Becchetti & Pisani, 2010). Therefore, many MFIs have incorporated a type of "cultural collateral" which is known as microfinance group lending.…”
Section: Theoretical Issues Of Microfinance Studiesmentioning
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.