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on Microfinance |
| By: | Gharad 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 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. |
| JEL: | C93 D12 D14 D82 O12 O16 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:59009&r=mfd |
| By: | Tabea Herrmann (University of Hannover); Juliane Zenker (University of Göttingen) |
| Abstract: | Funeral Aid Associations (FAAs) in Northeast Thailand offer micro funeral insurance at affordable premium levels while they barely risk-rate potential members. Due to the set-up of FAAs, high-risk individuals have a monetary incentive to join the insurance. Compared to many other micro insurance schemes, however, FAAs do not seem to face adverse effects of this unregulated selection of highrisk individuals into the schemes. We show that this is partly due to a counter-balancing selection of a sufficient number of low-risk individuals, who deliberately buy insurance despite what their risk types would advice. This is particularly the case for married individuals who self-select into the associations at relatively lower risks. We provide a theoretical framework showing that marriage may reduce mortality risk and at the same time increase insurance demand based on altruistic tendencies towards the spouse. Our results suggest that this preference based selection is able to balance 13 percent of the high-risk type selection based on age, health, and gender. |
| Keywords: | Asymmetric Information; Adverse Selection; Advantageous Selection; Microinsurance; Thailand |
| JEL: | D14 D82 G22 O12 |
| Date: | 2016–02–28 |
| URL: | http://d.repec.org/n?u=RePEc:got:gotcrc:198&r=mfd |