Working Paper: CEPR ID: DP8857
Authors: Gharad Bryan; Dean S. Karlan; Jonathan Zinman
Abstract: We examine a randomized trial that allows separate identification of peer screening and enforcement of credit contracts. A South African microlender offered half its clients a bonus for referring a friend who repaid a loan. For the remaining clients, the bonus was conditional on loan approval. After approval, the repayment incentive was removed from half the referrers in the first group and added for half those in the second. We find large enforcement effects, a $12 (100 Rand) incentive reduced default by 10 percentage points from a base of 20%. In contrast, we find no evidence of screening.
Keywords: credit market failures; information asymmetries; peer networks; social capital; social networks
JEL Codes: C93; D12; D14; D82; O12; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| peer screening (C92) | repayment behavior of referred borrowers (G51) |
| enforcement incentive provided to referrers (M52) | repayment behavior of referred borrowers (G51) |