Microfinance clients were randomly assigned to repayment groups that met either weekly or monthly during their first loan cycle, and then graduated to identical meeting frequency for their second loan. Longrun survey data and a follow-up public goods experiment reveal that clients initially assigned to weekly groups interact more often and exhibit a higher willingness to pool risk with group members from their first loan cycle nearly 2 years after the experiment. They were also three times less likely to default on their second loan. Evidence from an additional treatment arm shows that, holding meeting frequency fixed, the pattern is insensitive to repayment frequency during the first loan cycle. Taken together, these findings constitute the first experimental evidence on the economic returns to social interaction, and provide an alternative explanation for the success of the group lending model in reducing default risk.

A number of development assistance programs promote community interaction as a means of building social capital. Yet, despite strong theoretical underpinnings, the role of repeat interactions in sustaining cooperation has proven difficult to identify empirically. We provide the first experimental evidence on the economic returns to social interaction in the context of microfinance. Random variation in the frequency of mandatory meetings across first-time borrower groups generates exogenous and persistent changes in clients' social ties. We show that the resulting increases in social interaction among clients more than a year later are associated with improvements in informal risk-sharing and reductions in default. A second field experiment among a subset of clients provides direct evidence that more frequent interaction increases economic cooperation among clients. Our results indicate that group lending is successful in achieving low rates of default without collateral not only because it harnesses existing social capital, as has been emphasized in the literature, but also because it builds new social capital among participants.

Mexican manufacturing job loss induced by competition with China increases cocaine trafficking and violence, particularly in municipalities with transnational criminal organizations. When it becomes more lucrative to traffic drugs because changes in local labor markets lower the opportunity cost of criminal employment, criminal organizations plausibly fight to gain control. The evidence supports a Becker-style model in which the elasticity between legitimate and criminal employment is particularly high where criminal organizations lower illicit job search costs, where the drug trade implies higher pecuniary returns to violent crime, and where unemployment disproportionately affects low-skilled men. (JEL F16, J24, J64, K42, L60, O15, R23)The illicit drug trade is a multi-billion dollar industry that plausibly imposes high social costs. Notably, conflicts over drug trafficking during the past decade have transformed Mexico into an epicenter of global violence-in 2016, it ranked as the world's second most deadly conflict zone, with its number of violent deaths surpassed only by Syria (International Institute for Strategic Studies 2017). More generally, the world's highest rates of violence are concentrated in urban areas of developing countries involved in the cocaine trade (Igarapé Institute 2017). These striking facts raise the question of why participating in the drug trade is so attractive and fights to control drug routes are so violent. Anecdotal evidence suggests that limited economic opportunities and lackluster macroeconomic performance could play a central role. When asked how he got involved in the drug business, Joaquin "El Chapo'' Guzman-named the world's most powerful trafficker by the US government-responded: "in my [geographic] area … there are no job opportunities'' (Penn 2016).

A number of development assistance programs promote community interaction as a means of building social capital. Yet, despite strong theoretical underpinnings, the role of repeat interactions in sustaining cooperation has proven difficult to identify empirically. We provide the first experimental evidence on the economic returns to social interaction in the context of microfinance. Random variation in the frequency of mandatory meetings across first-time borrower groups generates exogenous and persistent changes in clients' social ties. We show that the resulting increases in social interaction among clients more than a year later are associated with improvements in informal risk-sharing and reductions in default. A second field experiment among a subset of clients provides direct evidence that more frequent interaction increases economic cooperation among clients. Our results indicate that group lending is successful in achieving low rates of default without collateral not only because it harnesses existing social capital, as has been emphasized in the literature, but also because it builds new social capital among participants.

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