Working Paper: NBER ID: w17883
Authors: Gharad T. Bryan; Dean Karlan; Jonathan Zinman
Abstract: Empirical evidence on peer intermediation lags behind many years of lending practice and a large body of theory in which lenders use peers to mitigate adverse selection and moral hazard. Using a simple referral incentive mechanism under individual liability, we develop and implement a two-stage field experiment that permits separate identification of peer screening and enforcement effects. We allow for borrower heterogeneity in both ex-ante repayment type and ex-post susceptibility to social pressure. Our key contribution is how we deal with the interaction between these two sources of asymmetric information. Our method allows us to cleanly identify selection on the likelihood of repayment, selection on the susceptibility to social pressure, and loan enforcement. We estimate peer effects on loan repayment in our setting, and find no evidence of screening (albeit with an imprecisely estimated zero) and large effects on enforcement. We then discuss the potential utility and portability of the methodological innovation, for both science and for practice.
Keywords: No keywords provided
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 does not significantly affect loan repayment rates (H81) | loan repayment rates (G51) |
| enforcement effects (K40) | loan repayment rates (G51) |
| peer pressure (C92) | loan repayment behavior (G51) |
| no significant differences in repayment rates between different incentive groups (H81) | selection effects (C52) |