Cover Image

Social Identity and Group Lending

The success of joint liability programs depends on nature and composition of borrowing groups. Group formation is a costly process and in our model these costs vary with the social identity of group partners. We show that risk heterogeneity in a borrowing group may arise due to the social identity of the agents. The presence of caste and gender bias may not resolve the adverse selection and moral hazard problems created by information asymmetry between the borrowers and the lender. We also find that with costly group formation and state verification, individual liability lending may be better than joint liability lending. Thus ignoring social identity and group formation costs can lead to the failure of a joint liability program. Finally, the paper also suggests that targeting different social groups requires the use of a menu of joint liability costs.
Year of publication:
2004
Authors: Chatterjee, Prabirendra ; Sarangi, Sudipta
Institutions: DIW Berlin (Deutsches Institut für Wirtschaftsforschung)
Subject: Group lending | Risk heterogeneity | Formation costs | Social identity
Full text |
Extent:
application/pdf
Series:
Type of publication: Book / Working Paper
Language: English
Notes:
Number 405 24 pages long
Classification: D82 - Asymmetric and Private Information ; G20 - Financial Institutions and Services. General ; N23 - Europe: Pre-1913 ; O12 - Microeconomic Analyses of Economic Development
Source:
Similar items by subject
Similar items by person