Thy Neighbor's Keeper: The Design of a Credit Cooperative with Theory and a Test.

Economists now appreciate that resource allocation in less economically developed economies is profoundly influenced by nonfirm economic institutions. However, the authors' theories of nonfirm institutions often suggest different answers to many questions, including those of policy. This paper illustrates a method for discriminating between alternative theories using data from German credit cooperatives from nineteenth and early twentieth century Germany. The authors build a model of credit cooperatives designed to provide monitoring incentives and test this using nineteenth century data. Copyright 1994, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.