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Referrals: peer screening and enforcement in a consumer credit field experiment

Bryan, Gharad, Karlan, Dean and Zinman, Jonathan (2015) Referrals: peer screening and enforcement in a consumer credit field experiment. American Economic Journal: Microeconomics, 7 (3). pp. 174-204. ISSN 1945-7669

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Identification Number: 10.1257/mic.20130234

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.

Item Type: Article
Official URL: http://www.aeaweb.org/aej-micro/
Additional Information: © American Economic Association
Divisions: Economics
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HF Commerce > HF5601 Accounting
H Social Sciences > HG Finance
JEL classification: C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C93 - Field Experiments
D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis
D - Microeconomics > D1 - Household Behavior and Family Economics > D14 - Personal Finance
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O12 - Microeconomic Analyses of Economic Development
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O16 - Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
Sets: Departments > Economics
Date Deposited: 14 Aug 2014 11:46
Last Modified: 20 Mar 2019 02:37
URI: http://eprints.lse.ac.uk/id/eprint/59009

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