The Endowment Effect and Collateralized Loans

Carney, Kevin; Kremer, Michael; Lin, Xinyue; Rao, Gautam

doi:10.3386/w30073

Cited by 11 publications

(7 citation statements)

References 49 publications

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“…This result is also consistent with recent work showing the importance of loss aversion for take-up of collateralised microfinance(Jack et al, 2019;Carney, Lin, Kremer, and Rao, 2018). For the other three dimensions of heterogeneity -time preferences, management practices and mathematical ability -the evidence overwhelmingly suggests that there is no heterogeneity in take-up by those variables.…”

supporting

confidence: 89%

Asset-Based Microfinance for Microenterprises: Evidence from Pakistan

Bari,

Malik,

Meki

et al. 2024

American Economic Review

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We run a field experiment offering graduated microcredit clients the opportunity to finance a business asset worth four times their usual borrowing limit. We implement this using a hire-purchase contract; our control group is offered a zero interest loan at the usual borrowing limit. We find large, significant, and persistent effects: treated microenterprise owners run larger businesses with higher profits; consequently, household consumption increases, particularly on food and children’s education. A dynamic structural model with nonconvex capital adjustment costs rationalizes our results and allows counterfactual analysis; this highlights the potential for welfare improvements through large capital injections that are financially sustainable. (JEL C93, D22, G21, G32, L25, O14, O16)

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supporting

confidence: 89%

Asset-Based Microfinance for Microenterprises: Evidence from Pakistan

Bari,

Malik,

Meki

et al. 2024

American Economic Review

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“…Thirdly, while our results suggest that asset-collateralization can meaningfully increase credit access for the purchase of durable, repossessable assets like water tanks, more research is needed to determine whether loans collateralized with existing repossessable assets are an effective tool for financing non-collateralizable assets like human capital and working capital. 53 More generally, our results suggest there is value to exploring whether alternative financial contracts, beyond those normally used by microfinance institutions, may offer the potential to expand credit access in ways that spur investment.…”

Section: Discussionmentioning

confidence: 75%

Credit Access, Selection, and Incentives in a Market for Asset-Collateralized Loans: Evidence From Kenya

Jack¹,

Kremer²,

Laat

et al. 2023

Review of Economic Studies

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We study the potential for asset collateralization to expand access to credit in rural Kenya. Increasing the share of a loan for a durable agricultural asset that is collateralized by the physical asset itself (from zero to 96%) while reducing the share backed by financial assets increases loan take-up considerably, with only a very limited impact on repayment behavior and the lender’s profitability. A Karlan-Zinman test finds evidence of small and marginally significant selection effects in some specifications but no evidence of moral hazard. We find no evidence that joint versus individual liability affects take-up or repayment. Loans had real impacts on investment, milk sales and girls’ school enrollment. The lender, a savings and credit cooperative, responded to the study results by offering 80% asset-collateralized loans.

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“…Behavioral Phenomena across Sub-populations. Both theoretical and empirical analyses suggest that behavioral phenomena will be less pronounced when individuals are experienced with specific choices (List, 2003, Feng and Seasholes, 2005, Kőszegi and Rabin, 2006, Carney et al, 2019. Column 2 of Table 3 shows data for those who have performed casual labor within the past three months, while Column 3 shows individuals who self-report that they have considered purchasing a MoneyMaker pump.…”

Section: Estimation Results and Robustnessmentioning

confidence: 99%