Peer Group Formation in an Adverse Selection Model

Aghion, Beatriz Armendáriz de; Gollier, Christian

doi:10.1111/1468-0297.00557

Cited by 142 publications

(24 citation statements)

References 12 publications

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“…This view has been shared by Aghion and Gollier (2000) in a parallel work on peer group formation 36 . According to Aghion and Gollier, the peer group model helps in the induction of low interest rates.…”

Section: Peer Selectionmentioning

confidence: 96%

Microfinance: Does it Hold its Promises? A Survey of Recent Literature

Khawari

2004

SSRN Journal

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Section: Peer Selectionmentioning

confidence: 96%

Microfinance: Does it Hold its Promises? A Survey of Recent Literature

Khawari

2004

SSRN Journal

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“…Aghion, Armendariz & Gollier (2000) further elucidate that in an adverse selection situation it is possible to end up with "inefficiently" high interest rates. Since interest rates are the cost of borrowing, this in turn will reduce the opportunities available for poorer economic agents (See Stiglitz & Weiss, 1981).…”

Section: More Literaturementioning

confidence: 99%

“…One solution to limited liability problem is the "peer group formation" (See Aghion et al, 2000), it reinstates the absence of collateral by imposing the responsibility of repaying the debt -if a member defaults-to the rest of the group. Agion et al (2000) defy the notion that urban areas have higher rate of mobility and therefore hard to mitigate the moral hazard problem.…”

Section: More Literaturementioning

confidence: 99%

Does Microfinance Elevate Poverty? Does Family Size Matter in the Provision of Microcredit? Evidence from a Randomised Evaluation

Rahimi

2015

SSRN Journal

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This paper looks at randomised assessment of microcredit intervention through Spandana in Hyderabad, India. It looks at households with six or more than six members as a restricting conditioning to see whether provision of microcredit affects them differently. This paper finds significant differences in the way which smaller and bigger families allocate their additional resource received in the form of microcredit intervention. As stated above, bigger households spend more on durable goods as soon as they received a loan whereas smaller households do not emphasis on increasing household stocks. These results are revealing on how different households prioritise their expenditure categories and thus may serve as a guide to microcredit institutions on how to provide tailored credit packages. Likewise, intuitively bigger households 1 had higher borrowing levels compared to smaller households 2 . Furthermore, this paper concludes that smaller households increase their borrowing from banks and informal sources as well. The reasons behind this contrast maybe due to unconsidered factors in this study such as existing family businesses, household preferences or loan provider criteria. Keywords: microfinance, microcredit, poverty elevation, family size1 The term bigger households refers to households with six or more than six members for the rest of this paper. 2 Likewise, the term smaller households refers to households with five or less than five members.3

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“…In each round, subjects could use the proceeds of a "loan"to invest expected return. Examples include Morduch (1999), Ghatak and Guinnane (1999), and de Aghion and Gollier (2000).…”

Section: Introductionmentioning

confidence: 99%

Contract Structure, Risk-Sharing, and Investment Choice

Fischer

2013

Econometrica

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Few micro…nance-funded businesses grow beyond subsistence entrepreneurship. This paper considers one possible explanation: that the structure of existing micro…nance contracts may discourage risky but high-expected return investments. To explore this possibility, I develop a theory that uni…es models of investment choice, informal risk sharing, and formal …nancial contracts. I then test the predictions of this theory using a series of experiments with clients of a large micro…nance institution in India. The experiments con…rm the theoretical predictions that joint liability creates two potential ine¢ ciencies. First, borrowers free-ride on their partners, making risky investments without compensating partners for this risk. Second, the addition of peer-monitoring overcompensates, leading to sharp reductions in risk-taking and pro…tability. Equity-like …nancing, in which partners share both the bene…ts and risks of more pro…table projects, overcomes both of these ine¢ ciencies and merits further testing in the …eld.

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Peer Group Formation in an Adverse Selection Model

Cited by 142 publications

References 12 publications

Microfinance: Does it Hold its Promises? A Survey of Recent Literature

Microfinance: Does it Hold its Promises? A Survey of Recent Literature

Does Microfinance Elevate Poverty? Does Family Size Matter in the Provision of Microcredit? Evidence from a Randomised Evaluation

Contract Structure, Risk-Sharing, and Investment Choice

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